Devon Energy (DVN, Financial) produced another stellar financial quarter as it surpassed its second-quarter earnings target by 22 cents per share and beat its revenue estimate by a staggering $880 million.
The company's $5.63 billion in quarterly revenue presents a 132.6% year-over-year increase, which has prompted Devon Energy's management to increase its dividend distribution by 22% for a forward dividend yield of approximately 8.08%.
The oil and gas giant's robust earnings and shareholder-friendly attitude have coalesced to form a high-value stock with solid total return prospects.
Production update and full-year outlook
Devon Energy's second-quarter production rose by 7% quarter over quarter to settle at 616,000 barrels of oil equivalent per day, bolstered by 67 gross operated wells being added online.
The company's production costs for the quarter was a mere $13.01 per barrel, translating into a profit margin of more than $60 per barrel. Devon Energy is renowned for its wide profit margins, resulting from its vertically integrated business model and its numerous internal cost synergies.
Another development worth talking about is Devon's recent Williston Basin bolt-on acquisition, which is anticipated to be immediately accretive.
According to the company's President and CEO, Rick Muncrief, "This bolt-on acquisition is highly complementary to our existing position in the Williston Basin and is immediately accretive to our financially-driven strategy... RimRock's directly adjacent acreage offers strong operational synergies, adds to our high-quality inventory in the core of the play and positions us to further increase the return of cash to shareholders."
Lastly, Devon Energy intends to increase its upstream capital spending budget by $100 to $300 million, reflecting spending related to the Williston project as well as other growth opportunities.
Key drivers
Looking ahead, the main influencing factors for Devon Energy's growth are the global fossil fuel supply shortage and consumer sentiment.
The prior will benefit Devon Energy as it could play a critical role in filling supply gaps over the coming years. Ex-Russia oil and gas trade has caused a significant draw on Western supply, which will most likely need to be filled by the United States' oil and gas companies.
The latter is a worry. The signs are clear that global economic growth is slowing, meaning that income elasticity could dent oil and gas prices and, in turn, derail Devon Energy's profit margins.
Concluding thoughts
Devon Energy is in great shape in the current market, and its stock provides lucrative total return prospects. Investors should consider systemic risks, but I believe the stock's positives outweigh its negatives for the time being.
