• Rising commodity prices provide a tailwind for best-in-class oil-and-gas producers like Devon Energy (DVN).
  • Even beyond the energy price inflation, however, Devon has plenty of company-specific positive points.
  • Investors should put Devon Energy stock on their list of high-conviction assets to watch.

Oklahoma City-based Devon Energy (NYSE:DVN) is an exploration and production company focused on oil and natural gas. DVN stock has had its share of ups and downs, but has rewarded patient investors with a powerful recent rally.

The skeptics might claim commodity price inflation has pumped up oil and gas stocks. Granted, Devon Energy’s business has surely benefited from high petroleum prices.

Nevertheless, energy market companies vary in terms of their commitment to rewarding their shareholders. As we’ll see, Devon Energy stands apart from the competition in more ways than one.

Besides, its shareholder value isn’t entirely dependent on the commodity price explosion. Even after a stunning rally in the stock price, there should still be plenty of room to run in 2022.

What’s Happening with DVN Stock?

It’s been an amazing ride, no doubt about that. After bottoming out at $6 in March of 2020 when oil futures prices collapsed, DVN stock staged a jaw-dropping comeback. It even reached $60 today.

Don’t let your contrarian instincts cloud your judgment here. Just because a stock has rallied, that doesn’t necessarily mean it’s overpriced.

After all, Devon Energy’s trailing 12-month price-to-earnings ratio is just 13.91. If anything, this is a bargain that should bring value-focused investors into the fold.

Meanwhile, income investors ought to appreciate Devon Energy’s commitment to rewarding its shareholders. Impressively, the company provides a forward annual dividend yield of 6.86%.

Not long ago, Devon Energy’s board of directors declared a fixed-plus-variable dividend of $1 per share, which represents a record high for the company. Truly, Devon Energy is making a name for itself as a king of cash returns.

The Cash Is Flowing

Oftentimes, a company’s earnings will be the focal point of a quarterly financial report. Yet, for Devon Energy, 2021’s fourth quarter had multiple highlights.

Don’t misunderstand — its quarterly net earnings of $1.5 billion showed that the company is still quite profitable.

Here’s the real kicker, though: In 2021, Devon Energy generated a whopping $2.9 billion of free cash flow. This represents the highest total free cash flow in Devon Energy’s 50-year history.

Furthermore, the company’s fourth-quarter operating cash flow of $1.6 billion marked a 173% increase over the first quarter of 2021. So, is Devon Energy the dividend king or the cash-flow king?

Really, the company is all of the above — and the king of share buybacks, as well. In 2021’s fourth quarter, Devon Energy repurchased 14 million shares and its board expanded the company’s share-repurchase authorization by 60% to $1.6 billion.

In light of these stats, Devon Energy President and CEO Rick Muncrief touted his company’s “record-setting amount of free cash flow that was returned to shareholders through market-leading dividend payouts, opportunistic share buybacks, and improvements to our investment-grade financial strength during the year.”

What You Can Do Now With DVN Stock

It’s important to monitor the ups and downs of commodity prices, as they will surely impact the Devon Energy share price. Even with those fluctuations, however, it’s still fine to accumulate DVN stock. Great companies like Devon Energy are able to weather the vicissitudes in the oil-and-gas market.

Most of all, don’t assume the stock is overpriced just because it had a strong rally. As long as Devon Energy offers supreme value to shareholders, it’s a worthy addition to any growth-focused watch list.

— Louis Navellier and the InvestorPlace Research Staff

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Source: Investor Place