IBD Income Investor highlights top dividend stocks that can provide stable returns in difficult market conditions. Devon energy (DVN) is our latest entry into dividend stocks, delivering an eye-watering 8.7% return amid strong quarterly growth.
Devon Energy – headquartered in Oklahoma City – is an oil and gas producer operating out of the Midwest.
Profits are skyrocketing due to higher oil and gas prices. It beat Q3 2022 expectations by 75 cents on Nov. 1 and reported earnings of $2.88 per share on $5.43 billion in revenue. It also posted an astonishing 56.7% year-over-year revenue increase.
After reporting annual earnings per share of $3.53 in 2021, analysts estimate earnings per share will reach $8.87 this year. That would mean an increase of 250%.
The Street sees this buoyancy continue into 2023 and expects $8.93 per share EPS. That translates into a small growth spurt of 1%.
Rising growth and dividend stock returns
Massive dividend share increases will accompany hot growth in 2022.
Devon Energy’s current dividend yield of 9% is miles above the S&P 500 average of 1.6%. Even after Devon cut its dividend to $1.35 per share in November. A dividend cut may set alarm bells ringing, but Q3 results were strong and earnings beat expectations. Moreover, the strong production numbers exceeded expectations.
Previous dividend growth has been at a blistering pace, rising for seven consecutive quarters. To put it in context, the quarterly payment of $1.35 exceeded total dividends paid between 2018 and 2020.
Volatility in the energy market
Investors in dividend stocks should expect continued dividend fluctuations in response to volatile energy prices.
Devon Energy currently boasts impressive growth and a stable “BBB” S&P debt rating. If oil and natural gas prices remain high, investors can expect continued high returns. And there could be even more capital growth.
In addition to a high dividend, Devon Energy initiated a $2 billion dollar share buyback that is expected to reduce the total number of shares outstanding by 5%.
Finally, let’s look at the risks, as stocks are showing weakness and trading below their 50- and 200-day lines.
Recession fears have softened energy demand forecasts. With this uncertainty, investors should consider proper positioning and consider the overall allocation of this volatile sector in their cumulative assets.
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