Devon Energy (DVN) back to the Sweet 16 - Jan 2

[dan_s]

I've decided to move DVN back to the Sweet 16.

EOG Resources (EOG) and Diamondback Energy (FANG) are moving from the Sweet 16 to the High Yield Income Portfolio to make room for AR and DVN. If you are investing for High Yield Dividends, you will be hard pressed to find higher quality than EOG and FANG. Dividend yields of more than 8% and lots of "Running Room".

At the time of this post DVN was trading at $45.85. My current valuation of DVN is $56.00.

TipRanks: "In the last 3 months, 18 ranked analysts set 12-month price targets for DVN. The average price target among the analysts is $56.28. The 18 price targets range from $47 to $77."

[KGardiner]

Dan, what makes DVN a better Sweet 16 company than FANG at this moment?

[dan_s]

There is nothing wrong with FANG. It is just a better fit for our High Yield portfolio since the dividend yield is over 8.5% based on their last "Regular + Variable" dividend of $3.37 for Q3.

I do think VNOM may have more share price upside.

I call the Sweet 16 our "Flagship portfolio", but I think that currently our High Yield Income Portfolio has the most near-term upside. It has average dividend yield of more than 8.5% and all of the companies in it generate more than enough free cash flow to raise dividends. If the Fed actually does lower the interest rates, that should send money managers looking of solid companies that pay nice dividends.

When I drop CPE from the Sweet 16, Coterra Energy (CTRA) is the most likely to move back to the Sweet 16. If HH ngas can firm up over $3.00, more exposure to natural gas should help the Sweet 16.

EOG & FANG replacing DVN & CTRA in the HY portfolio should raise the portfolio's average yield a bit.

[KGardiner]

Thanks Dan,
I am long all of these stocks, but wanted to understand your perspective.
Kevin

[dan_s]

I turn 70 in March, so I am pushing more of my own portfolio into the companies that pay big dividends, which I believe are sustainable.
Stocks with the best chance this year will have:
> Production Growth that is fully funded by operating cash flow.
> Strong Balance Sheets.
> Returning cash to shareholders in the form of dividends and stock buybacks.
> Have lots of "Running Room".

DVN, EOG and FANG have all of the above.

If investors can ever get beyond the Fear of Recession, there is significant upside for all of the stocks in our three model portfolios. The "Safe Bets" are in the High Yield Income Portfolio.