3 Major Catalysts Could Push Devon Energy's Dividend Much Higher in 2024
Devon Energy's (NYSE: DVN ) innovative dividend has fallen sharply over the past year. After peaking at $1.55 per share after last year's second quarter, the combined fixed and variable dividend payout has fallen for four straight quarters. After this year's second quarter, it will be just $0.49 per share. But it looks like better times are ahead for Devon Energy's dividend. A trio of catalysts could fuel oil stocks to pay higher dividends in 2024.
Oil prices rebound (and could continue to rise
Devon Energy sold its crude during the second quarter at an average price of $71.74 per barrel. That's down from an average of $95.80 a barrel in the year-ago period. A more than 25% drop in oil prices has put downward pressure on Devon's cash flows, which supports its variable dividend.
However, oil prices have risen again in recent weeks. WTI, the primary U.S. crude oil benchmark, has risen more than 8% over the past month and recently hovered around $83 a barrel. A big driver was continued healthy demand and further OPEC production cuts.
These two factors could continue to push oil prices higher. Analysts expect there to be a wide gap between global supply and demand in the next few months, allowing the economy to burn off excess inventories. Many oil market forecasters believe this could push oil prices above $90 a barrel by early next year. Higher oil prices would boost Devon Energy's cash flow.
Rising oil production
Devon Energy is putting itself in an even better position to capitalize on higher oil prices by growing its production. The company's oil production reached an all-time high of 323,000 barrels per day (BPD) during the second quarter, an 8% increase from a year ago. It benefited from recent acquisitions and newly drilled wells in the oil-rich Delaware Basin.
The oil company expects its oil production to continue to grow. It sees production rise to 330,000 BPD in the third quarter, driven by recently completed wells. The company's oil production should continue to rise in the coming quarters as it drills and completes more wells. Higher oil production will increase its cash flow, especially if prices continue to rise. Falling oil prices weren't the only headwind affecting Devon Energy's free cash flow this year. The company was also hit by higher costs as inflation drove up oilfield service prices and increased capital spending. However, these headwinds are beginning to fade. CEO Rick Muncrief commented on the trend on a second quarter conference call. stated:
Our business is also starting to benefit from service cost deflation as contracts renew. This is due to reduced activity by natural gas companies and private producers over the past few months, resulting in improved service availability and cost deflation in virtually all categories.
The CEO expects these deflationary trends to continue. This will bring significant savings that will be reflected over the next year. The company expects to maintain its cost discipline and allow those savings to accrue to investors through higher free cash flow, most of which it will return to shareholders through variable dividends and share buybacks.
We are preparing for a strong year 2024
While it's still early days, Devon Energy appears poised to produce more free cash flow next year, driven by higher oil prices, increased oil production and cost deflation. This will give it more money to pay variable dividends, given its framework of paying out 50% of its free cash each quarter. These catalysts make now a compelling time to buy shares of Devon Energy for a higher dividend next year.
When our team of analysts has a stock tip, it can pay to listen. After all, the newsletter they've been running for over a decade, the Motley Fool Stock Advisor, has tripled the market.*They've just revealed what they believe are the ten best stocks for investors to buy right now... and Devon Energy wasn't one of them! That's right - he thinks these 10 stocks are an even better buy.
Devon Energy, a leading player in the energy sector, is making significant progress in its operations. Investors seeking robust dividend growth should take note of three critical catalysts that could potentially propel Devon Energy's dividend to new heights in 2024. These catalysts are not just speculative ideas; they are based on solid industry trends and company strategic moves.
Growing demand for oil and gas:
The first catalyst is the ever-increasing global demand for oil and gas. As economies recover from the impact of the pandemic, energy consumption will rise, especially as industry recovers and transportation needs increase. Devon Energy's extensive portfolio enables it to capitalize on this growing demand. By targeting key resource-rich regions and optimizing its production efficiency, the company is poised to benefit from higher energy prices, which will translate into higher earnings and potentially lead to a significant increase in its dividend payout.
Portfolio of strategic assets:
Devon Energy's strategic approach to asset management is the second major catalyst. The company is actively streamlining its portfolio and focusing on high-quality assets that show strong growth potential. This disciplined approach ensures that Devon Energy can efficiently allocate resources to areas with the best return, allowing the company to generate more cash flow. This cash flow, in turn, provides ample room for dividend expansion. Keywords such as "asset management", "portfolio optimization" and "growth potential" highlight the company's forward-looking strategies.
Sustainable financial strength:
The third catalyst is the company's commitment to maintaining sustainable financial strength. Devon Energy's efforts to reduce debt, control costs and improve operational efficiency have been notable. A financially strong company is better positioned to weather industry fluctuations and invest in growth opportunities. This financial stability not only increases shareholder confidence, but also allows Devon Energy to consider more significant dividend increases in the future. Keywords such as "financial stability", "debt reduction" and "operational efficiency" highlight the company's commitment to a strong balance sheet.
Devon Energy's potential to significantly increase its dividend in 2024 is supported by these three critical catalysts. Growing global energy demand, a strategic asset portfolio and sustainable financial strength combine to create a compelling case for dividend growth. As the company executes on its well-defined strategies and continues to adapt to evolving market conditions, investors could enjoy higher dividends in the coming year. Staying tuned to Devon Energy's progress and industry trends will be critical for investors looking to take advantage of the energy powerhouse's dividend potential.
.jpg)
0 Comments