Are Devon Energy (DVN) Stock Investors Happy, Or Did They Miss Out?
Key Points
Devon Energy closed its transformational merger of equals transaction with WPX Energy nearly five years ago.
The oil company has made several other acquisitions over the past five years.
These deals have created a much larger-scale oil company focused on producing free cash flow.
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Devon Energy (NYSE: DVN) is a leading U.S. oil and gas producer. The company has expanded significantly over the past five years by completing a series of acquisitions.
Here's a look at how the oil stock has performed compared to the S&P 500 during its acquisition binge over the past five years.
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Drilling down into Devon Energy's five-year returns
The following table shows the return of Devon Energy's stock price and its total return when adding in dividends compared to the S&P 500 over the past one-, three-, and five-year periods:
|
One-year |
Three-year |
Five-year |
|
|---|---|---|---|
|
Devon Energy |
7.1% |
-41.5% |
124.1% |
|
Devon Energy (total return with reinvested dividends) |
10.1% |
-33% |
190.6% |
|
S&P 500 |
12.8% |
74.3% |
85.7% |
Data source: Ycharts.
As that table shows, Devon Energy has underperformed the market over the past year. Meanwhile, investors have really missed out over the last three years. However, those who bought shares five years ago would be very happy today as the oil giant has crushed the market during that period.
What has fueled Devon's returns?
As an oil and gas producer, commodity prices have influenced Devon's returns over the past five years. However, there hasn't been a direct correlation between crude prices and Devon's stock. For example, shares are up 7% over the past year even though WTI, the primary U.S. oil price benchmark, is down over 13%. Meanwhile, Devon's share price has fallen much further than oil over the past three years (42% decline compared to 17% for WTI), while significantly outperforming it over the past five years (124% gain compared to a 30% rise).
One factor fueling Devon's meaningful outperformance over the past five years is its acquisition strategy. In late 2020, Devon Energy combined with WPX Energy in a $12 billion merger of equals transaction to create a leading U.S. oil and gas producer. The deal transformed it into a much larger-scale oil company focused on generating free cash flow that it planned to return to investors via dividends and share repurchases.
Devon has since closed several other deals aimed at further increasing its scale and ability to produce 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 bolster its Eagle Ford operations. Finally, the company acquired Grayson Mill Energy for $5 billion last year, further boosting its scale in the Williston Basin.
The company's acquisition strategy has paid off for investors. Devon has increased its quarterly dividend payment from $0.11 per share in 2020 to its current rate of $0.24 per share. Additionally, it has paid a total of $8.66 per share in variable dividends over the past five years. Devon has also repurchased a meaningful 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, allowing it to return substantial cash to shareholders despite fluctuations in crude prices. It remains in a strong position to continue creating shareholder value in the future.
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Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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