Devon Energy Buy Write Takes Dividend Tomorrow

There is an ex-dividend date tomorrow for Devon Energy (DVN), so if you own the stock through today’s close, you will earn a $1.55 per share payout from the oil and gas driller. – J.D.

Devon Energy (DVN) – Buy Write

Buy 100 DVN

Sell to Open 1 October 21 $70 Call

Execute for Net Debit of $65.10 or lower

Oklahoma City, Okla.-based Devon Energy (DVN) is one of the largest independent exploration and production companies in North America, largely onshore. It has proved reserves of 1.6 billion barrels of oil equivalent, and daily production last year averaged 572,000 BOE, which is expected to rise to an average of 610,000 this year. Three-quarters of production was oil and natural gas liquids, and oil accounted for 57% of revenue last year. Revenue this year for Devon is expected to rise 69% to $20.7 billion, with earnings per share jumping 169% to $9.49 per share.

Sales, profits, and production are not the only things growing rapidly, so is Devon’s dividend, thanks to the board’s commitment to bump up the payout during boom times. The company’s $1.55 per share quarterly dividend tomorrow is up 22% from last quarter and up 216% from just one year ago.

We will buy the stock to grab tomorrow’s dividend and sell October monthly calls one strike out-of-the-money.

Here is the buy write: Buy 100 DVN, and sell to open one contract of $70 October 21 calls for a net debit (stock price minus premium) of $65.10 or lower. Check the quote before you place your trade to see if you can get a lower net debit.

If DVN closes above $70 on October 21, we will be assigned and earn $6.45 per share (including the dividend) on $65.10 per share at risk, or 9.9%. Over a 43-day period, that would be an annualized return of 84.1%. If the stock closes at or below $70.00 at expiration, we would still own DVN at a cost basis of $63.55 per share, reflecting today’s premium and the dividend tomorrow.

Options income for this trade: We earn $400 selling 1 DVN October 21 $70 call contract. Click here for updated bid-ask and return characteristics.

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John Dobosz is editor of Forbes Dividend Investor, which provides a weekly portfolio of high-yielding, value-priced income stocks, REITs and MLPs, and Forbes Premium Income Report, which sends out options-selling trade recommendations on two dividend-paying stocks every Tuesday and Thursday.

NOTE: Forbes Premium Income Report is intended to provide information to interested parties. As we have no knowledge of individual circumstances, goals and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any assets or securities mentioned or recommended. We do not guarantee that investments mentioned in this newsletter will produce profits or that they will equal past performance. Although all content is derived from data believed to be reliable, accuracy cannot be guaranteed. John Dobosz and members of the staff of Forbes Premium Income Report may hold positions in some or all the assets/securities listed. Copyright 2022 by Forbes Media LLC.