Daily Stock Pick: June 30th, 2022

Stocks dropped in early trading as investors prepare to wrap up the worst first half of the year in decades. The first six months of 2022 have been wrought with pain for the major indexes. Moving into the second half of the year, many are wondering – are we turning the page on an ugly chapter, or is it time for a wake-up call? 

Yesterday the energy sector dipped into bear market territory, 21.5% below its June 8th high. Still, energy is the only sector in the green for the first half of the year with a 30% increase. The distant runner-up is Utilities, with a 3.5% loss.  

Many on Wall Street expect sky-high oil prices to continue to boost returns for some of the top names in energy and are looking at the recent plunge in energy stocks as an attractive opportunity. Matt Smith, lead oil analyst for the Americas at Kpler, an analytics company, recently told CNN Business that “triple-digit oil prices” are likely to stick around. “If Chinese demand comes roaring back after lockdowns and Russia continues to see production drop, then a retest of the high of $139 seen earlier in the year is not beyond the realms of possibility.”

Today we’re looking at an energy name that continues to raise the bar when it comes to rewarding investors, and it’s currently trading at just 8 times forward earnings.  


Texas-based independent energy firm Diamondback Energy (FANG) is living up to its reputation for rewarding investors, and many on Wall Street are awaiting the next move. 

The company recently announced enhancements to its capital return framework as a testament to its commitment to delivering significant value to shareholders. This will be the next iteration of a shareholder returns program that began with the initiation of its base dividend in 2018, which has increased 500% since.  

Diamondback will increase its base dividend to $3.00 per common share annually ($0.75 per quarter) beginning with the second quarter of 2022, a 7.1% increase from the company’s previous annual base dividend of $2.80 per share. Starting in the third quarter, the company’s Board of Directors has approved an increase to its return of capital commitment to at least 75% of Free Cash Flow, from its previous commitment of at least 50% of Free Cash Flow.

Diamondback has also repurchased 1,966,516 shares of its common stock for about $253 million to date during the second quarter at around $128.42 per share. The company expects that the combination of these stock repurchases together with its expected base-plus-variable dividends for the quarter will constitute a return of capital to stockholders well above 50% of Diamondback’s Free Cash Flow for the second quarter.

Diamondback’s high cash margins and low-cost structure will likely continue to drive an increasing return on capital. At the same time, its strong balance sheet should be able to withstand another downcycle, making this an ideal name to add to your watchlist.  

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