devon energy (NYSE:DVN) It's an acquired preference and only suitable for certain types of investors. This is despite its generous 4.6% dividend yield and shareholder-friendly dividend and share buyback policy. This is why this oil and natural gas company could be a buy or hold for some investors, but more investors will probably want to avoid it.
Buy Devon Energy
Devon Energy is an upstream company in the U.S. energy sector. That means producing oil and natural gas in the United States and selling it to generate revenue. The day-to-day operations of a company are probably very complex, but the big picture here is very easy to understand. If US oil and gas prices are rising, so are Devon's financial results. If oil and natural gas prices are falling, the company's performance will reflect that.
If you're looking for exposure to the energy sector, Devon Energy is a fairly straightforward way to get that exposure. It is important to understand that the company's financial performance and stock price are subject to fluctuations, just like energy prices. For example, West Texas Intermediate crude oil prices have risen so far in 2024, and Devon's stock is up about 15% since the beginning of the year. This is more than double his previous profit. S&P500 index.
But the story doesn't end there. Devon's dividends and share buybacks are directly tied to its business performance. This means that if your financial position is strong, your dividends will increase and you can buy back more shares. We may perform well when oil and natural gas prices are high or rising. In this way, stock prices provide additional leverage against rising energy prices. If you want to include it in your portfolio, Devon Energy is an option you should strongly consider.
sell devon energy
That said, there are downsides to the focus on oil and natural gas. If energy prices fall, Devon's share price will likely follow suit. And if energy prices decline and earnings weaken, the company will return less cash to investors through dividends and stock buybacks. For investors looking for energy investments that can provide a reliable source of income, this may not be an attractive proposition.
This variability is simply part of the story here and there's nothing you can do about it. Devon Energy is an upstream producer whose revenues and profits are directly tied to the ups and downs of the energy sector. You wouldn't want to own Devon Energy unless you could deal with the often dramatic and rapid price fluctuations of oil and natural gas. There are other companies in the energy sector that have historically provided more consistent dividends.
Hold Devon Energy
On the other hand, if you take a step back from valuing Devon Energy as a company and consider the impact owning its shares will have on your wider life, there may be room for it in your long-term investment plan. do not have. Unless you are trying to time the rises and falls of energy commodity prices (which most people should not be doing), consider Devon's variable dividend policy as a hedge against the energy costs you face in the real world. You can also. .
In effect, higher energy prices are likely to cause Devon's dividend to rise (albeit with a slight lag) in the same way that people pay more for pumps and heat their homes. So when you need a little extra cash, Devon will likely provide you with more dividend income. Of course, you need to understand that your extra cash will dry up when energy prices drop, but you probably don't need the extra cash anymore at that point. It can be a valuable addition to your income portfolio, but you need to understand why you own a Devon and what you can expect from it.
complex investment theory
If you're a conservative dividend investor who likes consistency, you'll probably dislike Devon Energy.It's not designed for that, so you'd be better off using a midstream player like enbridge or enterprise product partner.Companies like integrated energy giants exxon mobil or chevron would also be a better choice. However, if you want near direct exposure to energy prices, or if you want to hedge against real-world energy costs, Devon may be a good fit for your portfolio. The key is to understand what you're buying and why.
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Reuben Greg Brewer holds a position at Enbridge. The Motley Fool has a position in Chevron and Enbridge and recommends Chevron and Enbridge. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.
Devon Energy: Buy, Sell or Hold? Originally published by The Motley Fool
