Shares of Diamondback (NASDAQ:FANG) Energy FANG gained more than 3% on Friday Sep 17, a day after the energy player stated that its plans to distribute 50% of free cash flow to investors were expedited. Beginning the fourth quarter of this year, this Permian producer’s business will return free cash flow through its basic dividend and additional shareholder return methods.
In order to support this return promise, the Midland, TX-headquartered independent energy firm’s board approved a new share repurchase program worth $2 billion, which was implemented with immediate effect. The move underscores the company’s sound financial position and its commitment to reward its shareholders.
A much-improved commodity price scenario and the economic recovery contributed to the balance sheet strength of the energy companies like Diamondback. Benefiting from their robust fundamentals, their cash from operations is now covering capital spending. This provides a sustainable financial framework for these firms to increase cash returns to their shareholders.
Diamondback’s financial strength enables it to continue with its buyback program. As of Jun 30, 2021, the company’s operating cash flow surged 194.4% year over year. Its board of directors declared a quarterly dividend of 45 cents per share for the second quarter. This reflects a 12.5% hike in its quarterly payout from the previous levels of 40 cents per share. Its aggressive share-repurchase policies are anticipated to boost investor confidence in the stock. Diamondback’s strategy to return wealth to shareholders highlights its growth potential and stable liquidity position.
We believe, apart from its strategic investments, a continued focus on such shareholder-friendly initiatives will drive the company’s shares. The stock has rallied 164.6% in the past year period, outperforming the Zacks Oil and Gas - Exploration and Production - United States industry’s and the S&P 500’s increase of 120.4% and 38.9%, respectively.
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Zacks Rank & Key Picks
Diamondback currently has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space are Cabot (NYSE:CBT) Oil & Gas Corporation COG, Extraction Oil & Gas, Inc. XOG and Continental Resources (NYSE:CLR), Inc. CLR, each presently flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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