After record profits in 2022, the oil and gas industry is flush with cash. This means they started the year with their healthiest balance sheets yet – a position that was reflected in 93% of O&G executives saying they were positive about the industry in 2023.
To be sure, there are longer-term challenges. As governments continue to force a quicker transition to clean energy, underinvestment in “traditional” energy sources could create difficulties for the industry.
Ironically, these long-term headwinds have led to short-term tailwinds. This underinvestment has lessened supply – creating high energy prices and record cash flows for oil and gas companies.
And that brings us to today’s daily stock pick – a cash-rich company that could be one of the best dividend plays around, with a dividend yield touching 10%.
Devon Energy Corporation (DVN)
Devon Energy Corporation is a leading independent oil and natural gas exploration and production company with operations focused onshore right here in the United States.
Its primary operations are in the Barnett Shale STACK formation in Oklahoma, Delaware Basin, Eagle Ford Group, and the Rocky Mountains.
But what’s important is its dividend yield – a juicy 9.3% for the 2022 fiscal year. The company’s policy is a fixed + variable dividend, with the variable component based on its free cash flow.
So while that means accepting variability in dividend payouts, it also means being able to benefit from higher oil prices in the form of fatter dividend checks.
And for many investors, that’s a very attractive value proposition. DVN has been paying dividends for 30 consecutive years.
As for its stock price, DVN is down about 8.5% for the year.
The good news is that analysts’ median consensus price target is $66.50 – a 25% upside from where it is currently. And with oil production cuts coming down the pipeline, now might be a good time to start paying close attention to DVN.
To your wealth,
Felix @ Ace of Investing