
The major stock market indexes are hovering around all-time highs, but there are plenty of industries that have had their fair share of struggles so far this year.
Start Your Mornings Smarter! Wake up with Breakfast news in your inbox every market day. Sign Up For Free »
Upstream exploration and production (E&Ps) like Devon Energy (NYSE: DVN) and APA (NASDAQ: APA) are down significantly on the year.
Meanwhile, Target (NYSE: TGT) erased all of its year-to-date gains (and them some) by plunging after reporting its third-quarter earnings.
Here’s why all three dividend stocks are worth buying in December.
Image source: Getty Images.
Lee Samaha (Devon Energy): Down 15.5% year to date (YTD) at the time of this writing, many investors appear to have thrown in the towel on Devon Energy. However, doing so would be a mistake because the company continues to gush cash flow, which is used to retire debt, buy back stock, and pay dividends to investors. At the same time, management has acquired assets this year in the form of its purchases of Grayson Mill Energy (Bakken region) and its investments in its core assets in the Permian region have generated productivity improvements resulting in a hike in full-year production guidance.
I’ve discussed Devon Energy in more length elsewhere; suffice to note that based on a price of oil of about $70 a barrel (equating to the price at the time of writing) and its current share price, management believes it will generate around 9% of its market cap in free cash flow (FCF) next year. That will give management ample opportunity to pay down more debt or hike its variable dividend. Moreover, even if it elects to use cash flow to buy back stock opportunistically, the reduction in the share count will increase existing shareholders’ claim on future cash flows.
As such, the market appears to be too pessimistic about Devon’s acquisition of assets in the Bakken (where it can generate cost synergies in concert with its existing Bakken assets) and too dismissive of its potential to increase dividends in the future. If oil prices…
..