Devon Energy downgraded at Truist, says has backed off high dividend payout strategy

Devon Energy (NYSE:DVN) -2.7% in Thursday’s trading as Truist downgrades shares to Hold from Buy with a $43 price target, trimmed from $49, after reporting in-line Q3 adjusted earnings and better than forecast revenues while revising its Q4 production forecast higher to 811K-830K boe/day, a 13% increase compared to Q3.

Devon’s (DVN) commitment to shareholder returns and continued operational improvements has positioned the company to see outsized benefits from the current high commodity price environment, Truist’s Neal Dingmann writes.

But while Devon (DVN) continues to maintain its quarterly dividend and recently stepped up its stock repurchases, the total dividend yield is now a fraction of what it once was, and the company seems hesitant to guarantee a minimum total shareholder payout ratio, the analyst says.

Dingmann notes Devon (DVN) completed the Grayson Mill acquisition late in Q3, adding 307K net acres to the company’s portfolio and forecasting total Williston Basin oil production will begin to make up ~25% of overall production, with the Permian representing ~50%; while the oil content is often better in the Bakken, well data suggests Devon’s Delaware wells continue to outperform the Grayson wells, the analyst says.