Most dividend-paying corporations aim to offer investors with a steady income stream by setting a dividend they believe can be sustained or raised. Devon Energy (NYSE: DVN) has implemented the opposite strategy. The dividend yield on major quote services is 4.9%, but don't trust it. What you need to know and why Devon dividends are uncertain.
Devon Energy does what? As its name implies, Devon Energy produces oil and natural gas from onshore U.S. properties. It serves the Williston, Powder River, Anadarko, Delaware, and Eagle Ford basins. In 2023, production rose 8% from 2022. The industry average is $55 per barrel, while the business predicts its 2024 break-even price at $45 or less. Management expects at least 10 years of drilling opportunities.
Devon Energy's business appears robust and has an investment-grade financial sheet. According to Vanguard Energy Index ETF (NYSEMKT: VDE), the energy industry average is 3.2%, but the 4.9% dividend yield is higher. Wait before clicking buy.
How does Devon's dividend year look? Devon Energy pays varied dividends based on performance. As an oil and natural gas producer, its financial outcomes depend on commodity prices. Oil and natural gas prices fluctuate rapidly. Devon Energy has unpredictable financial results and a variable dividend.
Use numbers to demonstrate. Devon paid $0.89 per share in Q1 2023. Dividends dropped to $0.72 in Q2 2023. In Q3, it fell to $0.49 before rebounding to $0.77 in Q4. As said, $0.44 per share was the first-quarter 2024 dividend. So much variation! As shown in the chart below, the dividend fluctuates with oil prices, albeit slightly later.
To be honest, the corporation recently shifted shareholder cash return priorities. It will prioritize stock buybacks, reducing dividends. The company's business and dividend policy remain unchanged.
Where Devon Energy's dividend will be in a year is unknown. While imperfect, adding up the last four dividend payments is the best way to give investors some insight into the company's dividend. We know that future dividends will follow oil and natural gas prices (with a short lag). Dividend investors may not want to hear that, but it's crucial to understand.
Devon Energy is not an energy stock for dividend consistency. An integrated energy powerhouse like Chevron (NYSE: CVX) is better. Chevron's dividend yield is 4.2% and has climbed annually for 36 years. Devon Energy does not seek dividend consistency like Chevron.
Devon Energy pays decent dividends. Devon Energy's dividend policy may turn off investors. However, that doesn't make it bad policy. It assures stockholders immediately gain from rising energy prices. The downside is that investors must bear the loss of falling energy prices and dividend cuts.
Before buying Devon Energy, remember that you cannot forecast the dividend payment or how much money the stock will generate. You do know that if energy prices rise, you will receive a higher revenue stream, which may hedge your real-world heating and gas bills.
View for more updates