Devon's Shareholder Friendly Move - Analyst Blog
Devon Energy Corporation
) board of directors approved an increase in the quarterly cash
dividend from 22 cents per share to 24 cents per share,
reflecting an uptick of 9%. The increased dividend will be paid
on Jun 30, 2014, to shareholders of record as of Jun 13, 2014.
Devon has been consistently raising its dividend over the past decade and its Compounded Annual Growth Rate (CAGR) stands at 23% since 2004. On an annualized basis, the company's increased dividend results in a current dividend yield of 1.49% and a payout ratio of 22.5%.
Devon reported strong 2013 financial results with a marked increase in its liquidity position. Cash from operating activities, its primary source of liquidity, jumped 10% year over year and its cash balance went up by $1.4 billion. A firm and stable cash position is essential for a company to meet its dividend payments and other monetary obligations.
The company initiated a strategy to return to a more sustainable growth track by divesting its non-profit units. Devon is emerging as a low risk player, shifting its primary focus towards high-margin producing opportunities.
On the back of the GeoSouthern Energy acquisition in the Eagle Ford Shale, the company projects growth of 75% in light oil production in 2014. The acquired assets are expected to contribute $800 million in free cash flow from 2015 and increase going forward.
EnLink Midstream (a combination of Devon's U.S. midstream
assets and Crosstex) will also contribute to Devon's growth
endeavors. The location of these assets in rich oil and gas
regions, including the Barnett Shale, Permian Basin, Cana and
Arkoma Woodford, Eagle Ford, Haynesville, Gulf Coast, Utica and
Marcellus, gives a sure shot recipe for success.
For 2014, Devon's capital spending plans include $1.5 billion in the Permian and $1.1 billion in the Eagle Ford, $1.1 billion in oil projects in Canada and $600 million in the liquid rich areas of the Barnett. We believe strengthening its footprint in these resource rich regions will allow the company to not only sustain but increase its dividend payout going forward.
Dividend Increase at Peer
On Feb 13, 2014, Occidental Petroleum Corp. ( OXY ) announced an annual increase in its dividend to $2.88 from the earlier level of $2.56 per share. Occidental's dividend CAGR is a whopping 476% from 2002.
Devon Energy currently carries a Zacks Rank #3 (Hold). Other better ranked oil & gas stocks include Range Resources Corp. ( RRC ) and Warren Resources Inc. ( WRES ). Both the stocks sport a Zacks Rank #1 (Strong Buy).
DEVON ENERGY (DVN): Free Stock Analysis Report
OCCIDENTAL PET (OXY): Free Stock Analysis Report
RANGE RESOURCES (RRC): Free Stock Analysis Report
WARREN RSRCS (WRES): Free Stock Analysis Report
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