Top Dividend Stock: Devon Energy Boasts Eye-Watering 8.7% Yield

IBD Income Investor highlights top dividend stocks that could offer steady returns in tough market environments. Devon Energy (DVN) is our latest dividend stock entry, boasting an eye-watering 8.7% yield amid soaring quarterly growth.

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Devon Energy — headquartered in Oklahoma City — is an oil and gas producer operating out of the Midwest.

Earnings are skyrocketing amid higher oil and gas prices. It beat Q3 2022 expectations by 75 cents on Nov. 1, reporting a profit of $2.88 per share on $5.43 billion in revenue. It also booked an amazing 56.7% year-over-year sales increase.

After reporting annual earnings per share of $3.53 in 2021, analysts estimate its EPS will hit $8.87 this year. That would mark a 250% increase.

The Street sees this buoyancy continuing in 2023, expecting $8.93 per share EPS. That translates into a small 1% growth spurt.

Soaring Growth and Dividend Stock Yields

Massive dividend stock upticks accompany its hot 2022 growth.

Devon Energy’s current 9% dividend yield is miles above the S&P 500’s average 1.6%. Even after Devon slashed its dividend in November to $1.35 per share. A dividend cut can sound alarm bells but Q3 results were strong, with earnings beating expectations. In addition, strong production numbers exceeded guidance.

Prior dividend growth was on a torrid pace, increasing for seven consecutive quarters. To put it in context,  the $1.35 quarterly payment was higher than total dividends paid between 2018 and 2020.

Energy Market Volatility

Dividend stock investors should expect continued dividend fluctuations in reaction to volatile energy prices.

Devon Energy currently boasts impressive growth and a steady “BBB” S&P debt rating. If oil and natural gas prices remain buoyant,  investors can expect continued high yields. And there could be further capital appreciation.

In addition to a high dividend, Devon Energy has initiated a $2-billion-dollar share buyback that is expected to reduce total outstanding shares by 5%.

Finally, let’s consider the risks because shares have been showing weakness, trading below their 50- and 200-day lines.

Recessionary fears have softened projections for energy demand. With this uncertainty, investors should be mindful of appropriate position sizing and consider the total allocation of this volatile sector in their cumulative assets.

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