Devon Energy’s dividends look poised to grow.
Devon Energy (DVN -0.07%) stock gained massive popularity among income investors after it launched the oil industry’s first fixed-plus-variable dividend policy in 2021. Every time crude oil prices rise, so does Devon’s dividend payout, making it one of the most intriguing dividend stocks in the energy sector.
Here’s how you can earn $1,000 in annual dividend income from this oil stock.
Devon pays a fixed dividend every quarter, plus a variable dividend of up to 50% of the excess free cash flow (FCF) it generates during the period. For example, the company just declared a dividend of $0.44 per share for its second quarter, comprising a fixed and variable payout of $0.22 each per share.
Since Devon’s variable payout fluctuates with crude oil prices and FCF, the stock’s total dividend varies each quarter. For the sake of simplicity, let’s assume that Devon will pay the same dividend as Q2 for the rest of the year.
At $0.44 per share, that’s an annualized dividend of $1.76 a share. At this payout, buying around 570 shares, or investing roughly $24,600 in Devon stock at its current price, can earn $1,000 in yearly dividends.
Great time to buy this dividend stock
Devon Energy just reported record production for Q2 and raised its 2024 production guidance for the second time. The oil giant is also about to acquire Grayson Mill Energy’s Williston Basin business for $5 billion, which should triple its production in the basin and be immediately accretive to earnings and cash flow.
In fact, the accretive nature of the acquisition has already encouraged Devon’s management to expand its share-repurchase program by 67% to $5 billion through mid-2026. I wouldn’t be surprised if Devon boosts its fixed dividend, too — it raised its fixed payout by 10% to $0.22 per share in 2023.
A higher potential fixed dividend, coupled with a variable payout that should rise with production and oil prices, makes Devon Energy a compelling dividend stock to buy.
Neha Chamaria 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.
