Snag This ‘Strong Buy’ Energy Stock Now for Its 6% Yield
The Resurgence of the Energy Sector
The energy sector has surged back to life in the fourth quarter of 2023, shaking off a relatively subdued summer. Oil prices are set ablaze, fueled by escalating tensions in the Middle East and the looming threat of conflict involving Israel and Iran’s oil fields. Just last Friday, we witnessed WTI crude oil futures (CLX24) delivering their biggest weekly gain since March 2023. This critical backdrop positions **Diamondback Energy** (FANG) as a standout performer in the U.S. shale industry.
All Systems Go: Diamondback Energy’s Strong Position
Valued at around **$34.7 billion**, Diamondback Energy specializes in the acquisition, development, exploration, and exploitation of unconventional, onshore oil and natural gas reserves in the highly lucrative **Permian Basin**. Their recent acquisition of **Endeavor Energy Resources** has established Diamondback as a dominant player in this asset-rich landscape. The momentum caught the eye of **JPMorgan**, which has restarted coverage of FANG with an “Overweight” rating.
But wait, it gets better! Amidst the market’s inherent volatility, Diamondback provides a robust **6% dividend yield**—a sweet cushion for investors as we ride the energy rollercoaster.
Introducing the Fundamentals That Fuel Diamondback’s Success
Diving into Diamondback’s financial performance for the second quarter of 2024 reveals impressive results. The company generated **$837 million** in net income, translating to **$4.66 per share**, with an adjusted net income landing at **$813 million** (or **$4.52 per share**). These figures even edged past Wall Street’s consensus forecasts.
Production-wise, Diamondback has been hitting its stride, averaging over **276,000 barrels of oil per day**, which significantly contributed to **$1.5 billion** in operational revenues. Cash flow is equally impressive, boasting **$816 million** in free cash flow and **$841 million** in adjusted free cash flow.
Breaking down the latest merger with Endeavor, combined with a recently completed transaction by Diamondback’s subsidiary **Viper Energy**, the company continues to firmly root itself in a diverse, revenue-generating asset base. The merger adds depth to their already solid inventory and cements their strategy to support long-term growth.
The Analyst Forecast: What’s Next for FANG?
Looking ahead, analysts are bullish on Diamondback, with **19 out of 25** rating it a “strong buy.” Three suggest a “moderate buy,” while only three recommend a “hold.” The **average price target** for FANG stands at **$221.62**, implying a potential upside of around **10.6%** from its recent closing price.
FANG’s valuation looks appealing as well. With a **forward price/earnings (P/E) ratio** at **10.03**, it stands at a modest discount compared to the energy sector median, offering investors both value and growth potential. This aligns with its historical valuations, providing another layer of confidence.
Dividend Insight: Money in Your Pocket
One of the most attractive features of Diamondback Energy is its robust dividend policy. The company recently announced a base cash dividend of **$0.90** per share alongside a variable dividend of **$1.44** per share for the second quarter of 2024, which rounds out to an annual yield of approximately **5.71%**. With a **payout ratio** of **32.33%** and six consecutive years of dividend increases, Diamondback demonstrates a healthy balance between rewarding shareholders and maintaining the funds necessary for growth initiatives.
Final Thoughts: Ride the Wave with Diamondback Energy
In summary, Diamondback Energy (FANG) is well-positioned to capitalize on the energy sector’s resurgence. From strong financials to a lucrative acquisition strategy and a healthy dividend yield, FANG ticks all the right boxes for trend-following traders. As volatility looms in global energy markets, securing a position in this high-yield dividend stock could prove to be a savvy move.
Don’t miss the momentum—keep your eyes on Diamondback Energy as it continues to ride the upward wave in the energy sector.