Last update on 2024-06-27

Diamondback Energy (FANG) - Dividend Analysis (Final Score: 4/8)

Explore Diamondback Energy's (FANG) dividend performance and stability using our 8-criteria scoring system. Final Score: 4/8. Learn more here.

Short Analysis - Dividend Score: 4

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

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?

Interpret the criteria of dividend yield and why comparing it to industry average is significant.

Diamondback Energy's dividend yield of 5.1522% is noticeably higher than the industry average of 12.75%. Historical data show an increasing trend from a near-zero dividend yield prior to 2018. Notably, the most dramatic increase occurred between 2021 and 2022, jumping from 2.0862% to 6.5507%. Considering its stock price also surged from $48.4 in 2020 to $155.08 in 2023, this trend implies strong financial health. However, the industry yielding higher dividends suggests there is more room for growth. Diamondback's current yield is still below the industry trend, indicating there might be either conservative dividend policies or different capital allocation strategies in play.

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. It is important because it indicates the company's willingness and ability to increase shareholder value over time by distributing profits.

Diamondback Energy (FANG) has not maintained a consistent dividend distribution over the last two decades. The dividends per share began only in 2019, and there are fluctuations with significant spikes in certain years (an increase to 298.22 in 2022) and a negative growth in 2023. This inconsistency reveals that while the company may offer substantial dividends in certain years, it does not demonstrate a stable dividend growth rate exceeding 5% over the evaluated period. This trend is not favorable for long-term dividend growth investors looking for reliable and increasing returns.

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

Analyzing the average payout ratio gives us insights into the balance a company maintains between distributing profits to shareholders and retaining earnings for growth.

Over the past 15 years, Diamondback Energy (FANG) has exhibited an average payout ratio of approximately 9.76%, which is significantly lower than the threshold of 65%. The payout ratio trend shows variability, marked by an anomalous negative figure in 2020, indicative of potential losses or special circumstances. Notably, the high of 46.93% in 2019 and values nearing 50% in recent years suggest a responsive approach to shareholder returns. Despite these peaks, the consistently low average payout ratio demonstrates prudent financial management, balancing reinvestment in the company with dividends—a favorable trend for sustaining dividend payments while maintaining growth potential.

Dividends Well Covered by Earnings?

Explain the criterion for Diamondback Energy (FANG) and why it is important to consider

The criterion evaluates if Diamondback Energy's dividends are well-covered by its earnings, ensuring sustainability.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow measures the ability of a company to pay dividends using its free cash flow. High dividend coverage typically indicates that a company can sustain its dividend payments without undermining its financial health.

For Diamondback Energy (FANG), the free cash flow has shown considerable volatility from 2009 to 2023, with negative values until 2020 and gradually increasing to positive thereafter. In terms of the dividend payout amount, there was no consistent payout until 2010, with significant jumps observed in 2021 and 2022. The Dividend Covered by Cash Flow metric remains mostly negative or marginal until 2020, after which it showcases a positive trend, peaking in 2023 at around 1.197. This indicates an improved capacity to cover dividends through cash flow in recent years. However, the negative metrics in the past highlight periods of potential financial strain. Thus, while the recent trends are good, historical volatility should be carefully considered in long-term evaluations.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over the past 20 years help to ensure that investors relying on a steady income stream from their investments can count on the company to deliver consistent returns. Stability, indicated by dividend payments not dropping by more than 20%, reflects underlying business health and a company’s commitment to shareholder returns.

The dividend per share for Diamondback Energy (FANG) data shows the payment history over the period from 2009 through 2023. However, it is essential to note that there were no dividends issued from 2009 to 2018. The first significant dividend appears in 2019 at $0.375, increasing to $8.96 by 2022 but then dropping to $7.99 in 2023. Notably, this represents an even larger than 20% drop in dividend payments, which violates the stability criterion. This is a negative trend for income-seeking investors, as consistent and stable dividends are crucial.

Dividends Paid for Over 25 Years?

Examining a company's history of dividend payments can provide insights into its financial stability and commitment to returning capital to shareholders. A consistent dividend payout over 25 years is often seen as a positive indicator of financial health.

Diamondback Energy (FANG) does not meet the criterion of paying dividends for over 25 years. The company only started issuing dividends in 2018. Despite an initially steep increase in dividends per share from $0.375 in 2018 to $8.96 in 2022, followed by a slight drop to $7.99 in 2023, this still represents less than a decade of dividend history. While the recent trend in dividend increases is positive, the lack of a long track record can be seen as a negative factor when evaluating Diamondback Energy's consistency in returning value to shareholders. However, it is important to consider industry factors, as Diamondback Energy operates in the highly cyclical oil and gas sector, which can affect its dividend policies.

Reliable Stock Repurchases Over the Past 20 Years?

This criterion assesses whether Diamondback Energy has a history of repurchasing its own stock, which is important as it can indicate management's confidence in the long-term value of the company.

Over the past 20 years, Diamondback Energy (FANG) does not appear to have reliably repurchased its stock. Analyzing the data, the number of shares outstanding has generally increased from 22.6 million in 2009 to 180 million in 2023. Notably, significant increases in shares outstanding are observed in several years: 2013 (from 22.6 million to 36.9 million), 2017 (from 75.1 million to 97.7 million), and 2019 (from 104.9 million to 163.5 million). The only years where stock repurchase is observed are 2020 and 2022. In 2020, the share count reduced from 163.5 million to 158.0 million, and in 2022, it marginally dropped from 176.6 million to 176.5 million. This trend suggests that Diamondback Energy has either retained or increased its share count majority of the time, participating in issuance rather than consistent repurchasing activities. This is generally seen as a negative indicator if we are specifically looking for reliable stock repurchase habits.