Devon Energy (DVN, Financial) shares dropped by 10% on Monday after its chief financial officer, Jeffrey L Ritenour, sold 55 000 shares of the company's stock at $58.35 per share.
Some investors may be worried that his could be the beginning of deeper trouble for the company. However, I don't think that Devon Energy's momentum is done by any means - in fact, I think investors overreacted to the news; here's why.
Oil price dropback and pivot
Oil prices have retreated from their peaks on Monday after surging the past few weeks amid sanctions on Russia from many nations. I personally think we could see the price of WTI drop back into the $90 range and natural gas prices decline to around $4. However, I see these levels being sustained for most of 2022 as the U.S. is sitting with a supply problem; its oil rig count has been reduced by 59% during the past 10 years while capacity utilization is back up at 99.33%.
I thus see plenty of pressure on Devon Energy to possibly expand on its capacity within the coming year while also benefiting from selling its deposits at elevated prices.
Fundamentals
There's still plenty of froth in the consumer market as spending remains robust. Persistent consumer spending will likely drive the demand for Devon's deposits, which are all produced at a low-cost due to the firm's Permian Basin stronghold.
It's anticipated that the firm's core fundamentals will propel it for years to come as its projected three-to-five-year earnings per share growth rate of 12% is anticipated to add significant value to the stock.
Shareholder returns
Another reason shareholders should remain upbeat on Devon Energy's stock is its attractive dividend. Last year, the firm emphasized that it would pivot its strategy to more shareholder returns rather than continuing with its aggressive exploration policy.
Devon Energy is currently paying a dividend of $4.00 per share, with a forward yield of 6.82%, which is phenomenal. The firm's dividend safety metrics are also looking good, with its payout ratio trading at an 89% discount relative to its five-year average and its dividend coverage ratio also looking stable at 9.34%.
Bottom line
Devon Energy's stock has plenty of gas left in the tank, in my view, and I don't think investors should be worried about its recent weakness or the insider sell. Many market participants have cashed out on the profits generated by the long Russia-Ukraine trade, and I anticipate at least some of them to re-invest by the end of the week.
