Shares of Devon Energy (DVN 0.19%) have stumbled in the wake of its fourth-quarter and full-year results. A big factor driving the downdraft is another decline in the company's dividend payment.
However, with investors focusing on the falling dividend and some other headwinds, they're missing out on how well the company is performing these days. That led CEO Rick Muncrief to point investors back to the company's performance on the fourth-quarter conference call. Here's what the CEO wants investors to see.
This picture is worth a thousand words
Muncief led off the call by asking investors to turn their attention to the following slide in the accompanying investor presentation:
Image source: Devon Energy Investor Relations Presentation.
He then stated:
As you can see, for Devon Energy, 2022 was another year of outstanding accomplishments. We achieved all the capital objectives associated with our disciplined operating plan, we delivered the best financial performance in our company's prestigious 52-year history, and we took important steps during the year to strengthen the depth and quality of our asset portfolio.
Muncief highlighted that the company grew its production by 9% on a per-share basis, fueled by organic investment, accretive acquisitions, and the impact of its share repurchase program. The company has more than doubled its oil production since 2020, driven by acquisitions and its drilling program. That focus on oil has helped drive significant margin improvement. Meanwhile, Devon has helped further enhance its margins by streamlining its cost structure. That enabled the company to capture "the full benefit of favorable commodity prices" last year. As a result, the company's free cash flow more than doubled to a record $6 billion.
Leading shareholder returns
The CEO then drew investors' attention to the next slide in the presentation:
Image source: Devon Energy Investor Relations Presentation.
Muncrief commented,
As you can see in the red portion of the bar, Devon's dividend payout was more than double that of the energy sector and vastly superior to every sector in the S&P 500. However, I want to be quick to add that we are not just a high-yielding dividend story. We are also compounding per-share growth for investors through the execution of our $2 billion share repurchase program.
The CEO then pointed out that the company boosted its buyback program twice last year. Since launching the program, it has already spent $1.3 billion to retire 4% of its outstanding shares.
In addition to buying back shares, Muncrief noted that Devon has supplemented its organic growth by "taking advantage of unique M&A opportunities." It made acquisitions in the Williston and Eagle Ford that were: "highly complementary to existing acreage, and we secured them at an attractive and accretive valuation and captured top-tier oil resource in the best part of these prolific fields. While tough to come by, these transactions successfully demonstrate another way our plan can create value for shareholders."
Those deals put the company in an even better position to capitalize on higher oil prices in the future. While crude prices have cooled off in recent months due to improving supplies and demand concerns, several catalysts could push crude prices higher later this year. That could give Devon more money to buy back shares, make acquisitions, and pay dividends.
Speaking of that payout, even though Devon's total quarterly dividend payment has fallen from the peak due to its variable payout policy, the current rate of $0.89 per share gives Devon a 6.7% annualized dividend yield at the recent share price. That's one of the highest levels in the S&P 500. With its policy to pay out 50% of its quarterly free cash flow via a variable dividend, that payment could rise again this year if crude prices bounce back.
Devon is a lot more than a dividend stock
Devon gets a lot of attention for its high-yielding dividend. With that payout heading lower over the past couple of quarters, some investors are losing interest in the stock.
However, the payout is only half the story. Devon also uses its free cash flow to buy back stock and make accretive acquisitions that enhance its growth. Those features add to its appeal as a top oil stock to buy on the thesis that crude prices could see a resurgence.
