Last update on 2024-06-27

Devon Energy (DVN) - Dividend Analysis (Final Score: 5/8)

Devon Energy's dividend analysis: performance and stability assessed using an 8-criteria system. Final Score: 5/8. Comprehensive insights on DVN's dividends.

Short Analysis - Dividend Score: 5

We're running Devon Energy (DVN) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The dividend analysis of Devon Energy (DVN) considers eight key criteria about the performance and stability of its dividend policy. For a dividend yield higher than the industry average, Devon Energy has shown significant fluctuations and currently, at 6.3355%, falls short of the industry average of 12.75%. The company has an impressive average annual dividend growth rate exceeding 5%, although marked by high volatility. The average annual payout ratio has been negative due to several challenging years, indicating risks related to dividend sustainability. Earnings coverage for dividends has been inconsistent but shows signs of improvement recently. Similarly, the cash flow coverage displays highs and lows, with a notable recent dip. Devon Energy has consistently paid dividends for over 25 years despite variable amounts, fulfilling the stability criterion. Stock repurchases show a mixed trend, with frequent buybacks but also significant share increases in certain years. Overall, Devon earns a dividend score of 5, suggesting moderated performance and stability.

Insights for Value Investors Seeking Stable Income

Based on the detailed analysis, Devon Energy (DVN) demonstrates a moderate level of stability and performance in its dividend policy. The company shows strengths in long-term commitment to paying dividends and a high annual growth rate. However, concerns exist over its inconsistent earnings and cash flow coverage, and dividend yields that lag behind the industry average. For risk-averse investors, the volatility and inconsistent past performance may be discouraging. However, those looking for potential high yields and are willing to tolerate higher risks might find Devon Energy an attractive option worth further consideration.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield measures the annual dividends paid out by a company as a percentage of its current stock price. It's important because it indicates the return on investment from dividends alone for shareholders.

The current dividend yield for Devon Energy (DVN) stands at 6.3355%, while the industry average has surged to 12.75%. Over the past two decades, Devon's dividend yield has seen significant fluctuations: it's grown from as low as 0.3493% in 2003 to peaks of 8.4051% in 2022 before slightly falling to the current level. In contrast, the industry average has also varied, peaking at 12.75% in 2023. Notably, since 2019, Devon has markedly improved its yield from 1.3477% in 2019 to the present 6.3355%. However, while Devon's yield has improved, it's currently below the industry average by 6.4145 percentage points. Despite Devon's recent positive strides, it needs to ramp up its yield further to compete better within the industry.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate measures the annualized percentage rate of growth of a company's dividend over a specific period.

Looking at the Dividend Ratio for Devon Energy (DVN) over the past 20 years, we see substantial variability in the growth rates year over year. The company's average dividend ratio stands at around 29.76%, which far exceeds the threshold of 5%. However, this is driven by some exceptionally high growth years such as 2022 (195.43%) and 2021 (157.35%), counterbalanced by negative growth in years like 2009 (-20%) and 2023 (-44.49%). This indicates a highly volatile dividend policy, which might be a red flag for risk-averse investors, but for those looking for high-yield opportunities, this trend could be appealing.

Average annual Payout Ratio lower than 65% in the last 20 years?

The payout ratio measures the proportion of earnings a company pays to shareholders in the form of dividends. A ratio below 65% is considered healthy.

Devon Energy's average payout ratio over the last 20 years is -83.69%. This negative average results from years with significantly negative payout ratios, such as in 2013 (-156.89%), 2014 (-1744.42%), 2015 (-2.74%), and others. Negative payout ratios imply that the company paid dividends despite reporting losses, which can be concerning. However, in recent years, the payout ratios have improved, with positive percentages in 2021 (41.25%), 2022 (55.95%), and 2023 (48.94%). While this trend shows improvement, historically, the average remains far from ideal. This negative average indicates higher risk, questioning the sustainability of dividends during financially challenging periods.

Dividends Well Covered by Earnings?

Dividends being well covered by earnings means that the company's net income is sufficient to adequately cover the dividends it pays out to shareholders. This is important for assessing the sustainability of the dividends.

Analyzing the given data, we observe a mixed trend in Devon Energy's ability to cover its dividends with earnings. The dividend coverage ratio—a key indicator of sustainability—has fluctuated significantly. Healthy coverage is generally a ratio above 1. In the earlier years, Devon Energy maintained relatively low but positive coverage ratios, but during 2008 and 2009, we see negative ratios due to negative earnings per share (EPS). Particularly alarming was 2013 and 2015-2016, where negative earnings resulted in undefined coverage or a negative ratio, which signals that dividends were paid out from other resources, not from net income. Recent years show an improving trend, notably 2021 and 2022 with coverage ratios of around 0.412 and 0.559, respectively. However, even these ratios indicate that a significant portion of earnings is not sufficient to cover dividends. The trend seems to be improving, which is a positive sign, yet the company must focus on stabilizing and improving earnings consistently to ensure dividends are well covered.

Dividends Well Covered by Cash Flow?

Dividend coverage by cash flow assesses whether a company's free cash flow can adequately cover its dividend payments. It's crucial as sustained coverage ensures financial stability.

Devon Energy's dividend coverage ratio has shown significant volatility over the years. For the years 2006, 2009, 2010, 2011, 2012, 2013, 2014, 2015, and 2016, the company had negative free cash flows, resulting in a negative dividend coverage ratio. This indicates that during these periods, the company's free cash flow was insufficient to cover its dividend payments, which is a red flag for financial health. However, from 2017 onwards, the coverage improved significantly, reaching peaks in 2017 (1.22) and consistently staying above 1 in many subsequent years, meaning the free cash flow well covered the dividends paid out. The spike in 2020 (1.33) shows strong operational cash flows relative to dividends paid. Nonetheless, the last calculated ratio in 2023 shows a significant drop to around 0.71, suggesting a potential strain in covering dividends solely from free cash flow. This downward trend might raise concerns among investors regarding sustainability if it continues. While recent years have shown good coverage, maintaining this ratio is essential for long-term dividend reliability. Thus, overall, the trend indicates improvement but periodic concerns about cash flow sustainability relative to dividend payouts must be monitored.

Stable Dividends Since the Company Began Paying Dividends?

Explain the criterion for Devon Energy (DVN) and why it is important to consider

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is of utmost importance for income-seeking investors.

Dividends Paid for Over 25 Years?

Criterion 6 looks at whether the company has been paying dividends consistently for at least 25 years. Long track records of dividend payments indicate financial stability and maturity, which can be reassuring for investors.

Analyzing the data from 1998 to 2023, Devon Energy has indeed been paying dividends for over 25 years consistently. This is a positive trend as it implies a strong commitment to returning capital to shareholders. The amounts have varied over the years, with significant increases particularly in recent years (e.g., $1.75 in 2021, $5.17 in 2022, and $2.87 in 2023). Although there was a notable dip from 2016 to 2020, with dividends dropping as low as $0.30, the recent escalation suggests an adaptive and resilient company. This trend is generally good for the given criterion, showcasing Devon Energy's commitment to rewarding its shareholders, despite facing fluctuating market conditions.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases refer to the company's consistent buyback of its own shares. This is an important indicator as it can boost shareholder value and demonstrate confidence in the firm's future.

Devon Energy (DVN) has shown a mixed trend in terms of stock repurchases over the past 20 years. The reliably repurchased years include 2005, 2006, 2008, 2010, 2011, 2012, 2018, 2019, 2020, 2022, and 2023. This indicates a frequency in the company's stock repurchase activities. For instance, in 2010 and 2011, the total shares outstanding decreased from 446 million to 418 million. In contrast, there are years like 2021 where a significant increase in shares can be observed—from 377 million in 2020 to 663 million in 2021—likely due to stock issuance or acquisitions. The overall average repurchase frequency of 3.238 over 20 years must be evaluated in context. While the company has demonstrated periods of notable buyback activity, periods of share increases reduce the reliability of consistent repurchasing. This generally means that Devon Energy does show periods of shareholder value enhancement through buybacks but is not wholly consistent over the long term. This trend can be considered moderately positive given the substantial buybacks in recent favorable economic conditions.