1 Magnificent Oil Stock Down Nearly 30% to Buy and Hold Forever
Thursday, Nov 21, 2024 10:26 am ET
4min read Devon Energy (DVN) has been a standout performer in the oil and gas industry, but its recent stock price decline of nearly 30% presents an attractive entry point for long-term investors. Despite the drop, Devon Energy remains a compelling choice for those seeking a stable and growing income stream, as well as exposure to the energy sector's long-term growth prospects.
Devon Energy is a pure-play upstream oil and natural gas producer, with a focus on U.S. onshore assets. Its production is split evenly between oil and natural gas, providing exposure to both key global energy sources. With at least 10 years of drilling inventory and a low breakeven point of around $40 per barrel of oil, Devon has ample opportunity for growth.
The recent decline in Devon Energy's stock price can be attributed to a combination of factors, including the merger that increased its leverage and the subsequent debt reduction plan. The company targeted a $2.5 billion debt reduction, with $500 million paid down in the third quarter of 2024 alone. This debt reduction came at the expense of the dividend, which was cut to a base payment of $0.22 per share per quarter, a roughly 2.2% yield.
However, this reduction is temporary and shareholder-friendly, as it allows Devon to strengthen its balance sheet. Once debt reduction targets are met, Devon is likely to resume paying the variable dividend, potentially boosting income for patient investors. This balance between debt reduction and income maintenance makes Devon an attractive long-term hold for income investors.
Devon Energy's variable dividend policy is tied to its financial performance and corporate priorities. When energy prices are high and the company is generating strong earnings, it tends to augment its base dividend with a variable payment. Conversely, when energy prices are low or the company is focused on debt reduction, the variable dividend may be suspended or reduced. Given Devon's recent 30% stock price decline, which roughly tracks with West Texas Intermediate crude price declines, the company has settled its dividend at the base payment.
Despite the temporary dividend cut, Devon Energy remains an attractive investment due to its strong growth prospects, low breakeven point, and investment-grade rated balance sheet. Its exposure to both oil and natural gas provides a balanced approach to energy investing, while its focus on U.S. onshore assets capitalizes on the country's growing energy production.
In conclusion, Devon Energy's recent stock price decline presents an excellent opportunity for long-term investors seeking a stable income stream and exposure to the energy sector's growth prospects. Despite the temporary dividend cut, Devon's strong fundamentals and growth potential make it an attractive choice for those willing to tolerate higher risk in exchange for potentially higher returns. As the company completes its debt reduction plan and resumes paying the variable dividend, patient investors can expect to benefit from Devon Energy's long-term success.
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Devon Energy is a pure-play upstream oil and natural gas producer, with a focus on U.S. onshore assets. Its production is split evenly between oil and natural gas, providing exposure to both key global energy sources. With at least 10 years of drilling inventory and a low breakeven point of around $40 per barrel of oil, Devon has ample opportunity for growth.
The recent decline in Devon Energy's stock price can be attributed to a combination of factors, including the merger that increased its leverage and the subsequent debt reduction plan. The company targeted a $2.5 billion debt reduction, with $500 million paid down in the third quarter of 2024 alone. This debt reduction came at the expense of the dividend, which was cut to a base payment of $0.22 per share per quarter, a roughly 2.2% yield.
However, this reduction is temporary and shareholder-friendly, as it allows Devon to strengthen its balance sheet. Once debt reduction targets are met, Devon is likely to resume paying the variable dividend, potentially boosting income for patient investors. This balance between debt reduction and income maintenance makes Devon an attractive long-term hold for income investors.
Devon Energy's variable dividend policy is tied to its financial performance and corporate priorities. When energy prices are high and the company is generating strong earnings, it tends to augment its base dividend with a variable payment. Conversely, when energy prices are low or the company is focused on debt reduction, the variable dividend may be suspended or reduced. Given Devon's recent 30% stock price decline, which roughly tracks with West Texas Intermediate crude price declines, the company has settled its dividend at the base payment.
Despite the temporary dividend cut, Devon Energy remains an attractive investment due to its strong growth prospects, low breakeven point, and investment-grade rated balance sheet. Its exposure to both oil and natural gas provides a balanced approach to energy investing, while its focus on U.S. onshore assets capitalizes on the country's growing energy production.
In conclusion, Devon Energy's recent stock price decline presents an excellent opportunity for long-term investors seeking a stable income stream and exposure to the energy sector's growth prospects. Despite the temporary dividend cut, Devon's strong fundamentals and growth potential make it an attractive choice for those willing to tolerate higher risk in exchange for potentially higher returns. As the company completes its debt reduction plan and resumes paying the variable dividend, patient investors can expect to benefit from Devon Energy's long-term success.
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