Oil and natural gas giant Devon Energy Corporation’s (NYSE:DVN) stock has achieved stupendous outperformance in the last 12 months. This morning the stock is trending 7% higher. Despite the volatility in the underlying commodity prices, Devon Energy shares continue to gain investors’ confidence, based on robust dividend growth and buybacks backed by solid free cashflows, as well as synergistic acquisitions adding to its growth story.
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Robust Dividend Growth & Buybacks Backed by Solid Free Cash Flows
The company has a solid dividend pay-outs. In a year’s time, the dividend has grown significantly, registering growth of more than 200%. The company pays a fixed quarterly dividend of $0.18 per share and tops it with a variable dividend of up to 50% of excess free cash flow. The total dividend of $1.55 per share implies an annual dividend yield of 4.14%.
In addition, the company plans to return 6% value to shareholders in the form of buybacks. To date, the company has already repurchased shares worth $1.2 billion out of the $2.0 billion buyback authorization.
The dividend growth as well as the buybacks are backed by robust free cash flows. The company’s FY2022 free cash flow yield of 16% is far superior to its peers as well as the benchmark indices. It is 4x the average free cash flow yield of stocks trading on the NASDAQ (NDX).
Concurrent with its Q2 earnings, the company also raised its FY2022 outlook for production as well as future free cash flow generation.
Accretive Acquisitions
The company has a impressive record of making accretive acquisitions. Last week, the company completed its bolt-on $1.8 billion acquisition of Validus Energy, an Eagle Ford operator.
The acquisition adds 42,000 net acres close to Devon’s existing facility as well as 350 repeatable drilling locations.
Validus Energy has the current production of 35,000 barrel of oil equivalent (Boe) per day with expected ramp-up to 40,000 Boe per day in the next year. The newly added inventory will bolster the company’s production capacity, and boost its margins as well as its free cash flow generation in the coming years.
What is the Target Price for DVN Stock?
On TipRanks, Devon Energy stock boasts an average price target of $82.50, which implies 28.8% upside potential from current levels. The highest price target of $115 presents a return potential of 79.7% while the lowest price target of $61 implies a 4.7% downside potential.
Markedly, DVN stock has a top-notch Smart Score of a “Perfect 10” on TipRanks. Further, it has a very positive signal from hedge fund managers, who added 664,500 shares during the last quarter.
Concluding Thoughts
What’s most impressive about DVN stock is that it has a robust balance sheet with a strong cash position backing its acquisitions and outstanding dividend growth and buybacks.
No wonder, the TipRanks’ Stock Investors tool shows that investors currently have a Very Positive stance on Devon Energy, with 4.6% of investors on TipRanks increasing their exposure to DVN stock during the past 30 days.
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