Crude futures (CLF24) are in focus ahead of Wall Street’s holiday break, as higher domestic inventories and reports of a delayed OPEC+ meeting briefly sent the January-dated contract south of $75 a barrel. In fact, the most active crude futures contract has now shed about 20% from its September close near $95.
Despite notable volatility in energy prices, the sector remains a favorite among income investors seeking high dividend yields. In this context, Diamondback Energy (FANG), an independent oil and natural gas company operating within the expansive soils of the Permian Basin, appears as a compelling stock pick.
The oil production of the Permian Basin has begun to compete with key energy-producing nations such as Russia and Saudi Arabia, and the forecast for 2024 suggests that it could contribute a staggering 50% of all US oil production. Diamondback Energy’s strength lies in acquiring, developing and exploring unconventional oil and gas reserves within this basin, utilizing horizontal drilling techniques to access multiple intervals through the Wolfcamp, Spraberry, and Bone Spring formations.
FANG’s strategic position in the Permian Basin, coupled with the stock’s robust performance, makes this a top idea in the oil patch right now. Here’s what you need to know about this dividend powerhouse.
Energy Stock setting a Strong Ritz
FANG has been a star on the charts, despite the volatility and uncertainty in the broader energy space this year. Year to date, FANG is up 18.8% – right in line with the performance of the S&P 500 Index ($SPX). By comparison, the S&P 500 Energy Sector SPDR (XLE) is off 1% for the year.
That YTD price performance also compares quite favorably to other high-yielding Permian oil stocks, including Exxon Mobil ( XOM ) takeover target Pioneer ( PXD ), Conoco Philips ( COP ), EOG Resources ( EOG ), and Devon Energy ( DVN ).
With a whopping market cap of $27.75 billion and an enterprise value reaching $33.84 billion, FANG is well positioned financially. And when it comes to the revenue game, FANG doesn’t just play — it dominates.
The latest Q3 report, released earlier this month, crushed Wall Street’s expectations. FANG delivered adjusted EPS of $5.49 per share, beating forecasts of $4.90 by more than 12%. Revenues recorded at $2.34 billion, which also exceeded the average analyst estimate.
Looking ahead, analysts are targeting EPS growth of 17% in FY 2024 to $21.72 per share. At 7.25x 2024 earnings, FANG seems reasonably priced at current levels.
FANG Dividend History and 2024 Forecast
When it comes to paying back shareholders, FANG currently distributes a basic quarterly dividend of $0.84 per share, along with variable dividends – for a total cash payout of $3.37 per share in the last quarter. So while the ex-dividend yield is a relatively tame 2.17%, the trailing 12-month yield is north of 5%.
Diamondback Energy also has room to continue fueling future dividend payments. The payout ratio is only 37%, and the company has ample cash flow and earnings to support continued growth.
Analysts shout “Strong Buy” for FANG in 2024. Out of 23 analysts, a solid 19 are in the “Strong Buy” camp, one goes for “Moderate Buy”, 2 say “Hold”, and only one is bullish. to suggest “Moderate Sales.” The group has an average target price of $183.91 for FANG, which implies an expected upside of 19.5% from current levels.
Wrapping up
In conclusion, FANG is the rare energy stock that has actually kept pace with its parent S&P 500 Index this year. As a leading energy name in the Permian Basin, FANG offers growth potential in 2024, along with its robust dividend yield — and some bonus takeover target potential, too.
At the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. For more information, please see Barchart’s Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.