Why Devon Energy Stock Rallied Today
Key Points
Following its combination with Coterra Energy, Devon is better positioned to generate strong returns for shareholders.
Management is focused on generating free cash flow, which should support sizable dividends and stock buybacks.
- 10 stocks we like better than Devon Energy ›
Shares of Devon Energy (NYSE: DVN) rose on Wednesday after the hydrocarbon exploration specialist provided investors with an updated operational forecast for 2026.
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Stronger together
Devon completed its $58 billion merger with fellow oil and gas producer Coterra Energy in May. The combination created a more financially sound shale operator with a leading presence in the oil-rich Delaware Basin.
The combined company is on track to produce an average of 1.38 million barrels of oil equivalent per day in 2026. To do so, it plans to spend roughly $4.9 billion this year to bring 460 to 480 net wells online.
Lucrative cash returns for shareholders
Devon's operating strategy prioritizes cost-efficiency and free cash flow generation. Management is targeting $1 billion in ongoing annual pre-tax cost savings by the end of 2027. Devon intends to use the cash its wells produce to strengthen its balance sheet by paying off $1.25 billion of debt.
Devon also plans to pass about 70% of its excess cash on to shareowners via a quarterly fixed dividend of $0.32 per share -- representing a forward annual yield of 2.7% based on its current stock price of $46.60 -- and $8 billion in stock buybacks.
"Today's guidance underscores the strength of our newly combined platform as one of the largest and most efficient E&P [exploration and production] companies," CEO Clay Gaspar said.
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Joe Tenebruso 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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