Get your money's worth with this article, as it offers not one but three potential answers to Devon Energy's (NYSE: DVN) dividend question. While there's no definitive answer, the prospect of significant returns to shareholders is clear.
Devon Energy's capital return to shareholders
First, Devon Energy will pay at least $0.88 in dividends this year through its fixed dividend, implying a dividend yield of 1.7% at the current price.
Second, Devon Energy plans to return 70% of its free cash flow (FCF) in the form of dividends and share buybacks based on management's projections and an average price of oil of $85 a barrel in 2024. Devon's returns to shareholders would be 7.5% of its market cap. In other words, the company could, theoretically, at least, pay a 7.5% dividend yield to shareholders at the current price.
The third and most likely answer is something in the $0.88 to $4 range, representing a 1.7% to 7.5% yield based on the above numbers. The final figure is determined by the level of share buybacks initiated by management.
Share buybacks and value creation
The company has a $3 billion share repurchase program in place, and by the end of 2023, it had repurchased 45 million shares for $2.3 billion, approximating $51.05 a share. Given that the share price is only $52, it's reasonable to expect management to prioritize share buybacks over increasing its variable dividend.
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The $3 billion share repurchase program expiring at the end of 2024 has only $700 million remaining.
Assuming the price of oil is $85 a barrel in 2024, Devon should generate around $3.55 billion in FCF, allocating 70%, or around $2.5 billion, for buybacks and dividends. If Devon completes the remaining part of its share repurchase program, it should leave about $1.8 billion for fixed and variable dividends, equating to around $2.80 in dividends per share.
That would be my best guess for Devon's dividend in 2024, implying a 5.4% dividend yield at the current price.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
