Get your money's worth with this article, as it offers not one but three potential answers to Devon Energy's (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.
