5 Reasons to Love Devon Energy Corporation (DVN)

You don’t often find great capital allocation in the energy industry and, to be honest, you’ll be hard-pressed to find this trait elsewhere. Devon is intently focused on managing its cash, which has led to the company reducing its debt by $3 billion since 2003. Not only that, but it has reduced share count by 20% since 2004, and has increased its dividend by 26% annually since 2004. Not only is Devon shareholder-friendly, but management is smartly allocating capital to grow liquids production, while taking its foot off the gas and not allocating capital to grow natural gas production.

Terrific balance sheet
Because of smart capital allocation, Devon is sitting on a cash-rich balance sheet with more than $7.5 billion of cash to weather any storm. It does have debt, but the company’s repositioning plan has shed non-core assets, and enabled the company to build up that cash war chest. When natural gas prices plunged a few years back, Devon was in the same pickle as fellow natural gas peer Chesapeake. Because Devon wasn’t as aggressive before prices plunged, and had greater diversity, it was able to weather that storm and reposition for the turn.  Chesapeake, on the other hand, still has more than $12.5 billion of debt weighing down its balance sheet and, while it too has been unloading assets, it still is just scraping by.

My Foolish take
There’s a lot to love with Devon, and what impresses me the most about the company is how its top-notch capital allocation has yielded such a terrific balance sheet. You don’t find that too often in the energy industry. While some might argue that the company bet wrongly by focusing completely onshore, I think that Devon smartly realized that it was best to focus on its core plays rather than to be over-diversified

The article 5 Reasons to Love Devon Energy originally appeared on Fool.com and is written by Matt DiLallo.

Fool contributor Matt DiLallo has no position in any stocks mentioned. The Motley Fool owns shares of Devon Energy and has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy.

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