Are Devon Energy (DVN) stock investors happy or have they missed out? | Colorful fool
Devon Energy’s acquisition strategy has paid big dividends over the past five years.
Devon Energy (DVN +0.27%) is the leading US producer of oil and natural gas. The company has expanded significantly over the past five years by completing a series of acquisitions.
Here’s a look at how oil reserves achieved compared to S&P 500 during its acquisition spree over the past five years.
Image source: Getty Images.
An examination of Devon Energy’s five-year returns
The following table shows the return on Devon Energy’s share price and its total return when adding dividends compared to the S&P 500 over the past one-, three-, and five-year periods:
|
One-year |
three years |
Five years |
|
|---|---|---|---|
|
Devon Energy |
7.1% |
-41.5% |
124.1% |
|
Devon Energy (total return with dividends reinvested) |
10.1% |
-33% |
190.6% |
|
S&P 500 |
12.8% |
74.3% |
85.7% |
Data source: Ycharts.
As the table shows, Devon Energy has underperformed the market over the past year. Meanwhile, investors have really missed out over the past three years. However, those who bought the stock five years ago would be very happy today as the oil giant has crushed the market during that period.
What fueled Devon’s comebacks?
As an oil and gas producer, commodity prices have affected Devon’s returns over the past five years. However, there was no direct correlation between oil prices and Devon shares. For example, stocks are up 7% over the past year, even as WTI, the primary U.S. crude benchmark, has fallen more than 13%. Meanwhile, Devon’s share price rose dropped much further than oil over the past three years (42% decrease compared to 17% for WTI) while significantly it has surpassed it over the past five years (124% increase compared to 30% increase).
Today’s Change
(0.27%$0.10
Current price
$37.57
Key data points
Market capitalization
24 billion dollars
Daily range
$37.13 -$38.18
Range 52 weeks
$25.89 -$38.88
Volume
8.6 million
Avg. flight
7.8 million
Gross margin
23.20%
Dividend yield
2.50%
One factor driving Devon’s meaningful outperformance over the past five years is its acquisition strategy. In late 2020, Devon Energy merged with WPX Energy in a $12 billion merger to create a leading US oil and gas producer. The deal transformed it into a much larger generation-focused oil company free cash flow that it planned to return to investors through dividends and share buybacks.
Devon has since completed several other deals aimed at further increasing its scale and ability to generate free cash flow. In 2022, it acquired RimRock Oil and Gas for $865 million to strengthen its position in the Williston Basin. Devon followed that up a few months later with its $1.6 billion purchase of Validus Energy to boost its Eagle Ford operations. Finally, the company last year acquired Grayson Mill Energy for $5 billion, further strengthening its reach in the Williston Basin.
The company’s acquisition strategy paid off for investors. Devon increased quarterly dividend payment from $0.11 per share in 2020 to the current rate of $0.24 per share. In addition, it has paid out a total of $8.66 per share in variable dividends over the past five years. Devon has too redeemed a significant amount of its shares ($4.1 billion of its $5 billion authorization).
Devon’s acquisition strategy has made investors very happy
Devon Energy’s acquisition strategy has created significant value for investors over the past five years. The company has become a free cash flow machine that allows it to return substantial cash to shareholders despite fluctuating oil prices. That remains in a strong position continue to create shareholder value in the future.