https://www.barrons.com/articles/devon-energy-stock-price-oil-king-of-cash-51645026793
if paywalled
https://archive.is/qPkDG
3 replies (most recent on top)
It's their destiny to be the king of pain
Buying back stock is not returning cash to shareholders. It is giving the cash to stock sellers who no longer wish to be shareholders, leaving shareholders with a prportionately larger share of a proportionately smaller basket of assets. Share repurchases tend to be done at higher, rather than at lower, prices, absent some structural price discipline built into the system. Per share earnings look better going forward in a rising market, but per share losses are magnified when the product cycle reverses as it always does in commodities. I will not dwell on the relationship between executive compensation and buy-backs, but only will say that if executive compensation were based on phantom stock with dividend rights, rather than on pure stock options, corporate behaviour with respect to dividends v. buy-backs would be different. If there are to be buy-backs, then the Board authorization should have price limits built in and a savings fund established, to be expended on a cost averaging basis, with greater weighting on expenditures when prices are lower and lesser when they are higher, based on a benchmark.
Who'd have thought that buying a stock that has already run up 150% in one year is a good idea.... and btw, one that is NOT a hi-tech growth company!! Yet, as Bloomberg has pointed out in this article, the story of DVN is one that demonstrates why looking in the rearview mirror might be useful as background but could be costly as a primary investment metric. The DVN story is compelling, EVEN at these prices especially for someone like me who has a view on oil prices going up into the triple-digits and staying there for some time!