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Diversified Gas & Oil continues to raise dividend through COVID-19 crisis

Snapshot

  • Owns thousands of simple, mature wells
  • Recent results show production was 94,800 boepd
  • Dividend has risen steadily as production has increased
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Quick facts: Diversified Gas & Oil PLC

Price: 124.2 GBX

LSE:DGOC
Market: LSE
Market Cap: £878.6 m
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What it does

London-listed Diversified Gas & Oil PLC (LON:DGOC) is an operator of gas and oil-producing assets.

Its investment strategy is focused on the acquisition of mature, low-decline and low-risk wells, enhancement of operations with a focus on efficiency.  Founded in 2001, Diversified has deep roots in the Appalachian region of the United States.

How is it doing?

In November, DGO= said the outlook for natural gas “is looking increasingly positive” after it put in a solid third-quarter performance.

The third-quarter adjusted underlying earnings (EBITDA) rose to US$75mln from US$68mln in the preceding quarter and US$64mln in the same quarter of 2019.

The US-based group also declared a third-quarter dividend of 4.0 cents a share, up from the 3.75 cents paid in the second quarter.

The dividend is now 15% higher than it was before the coronavirus pandemic – a trend at odds with many publicly-listed companies.

What the boss says: Chief executive Rusty Hutson 

"We are pleased to report another solid quarter as we continue to execute our proven and resilient business model, which remains differentiated in the current climate. Our integration of the assets acquired from Carbon and EQT is progressing nicely while the assets perform in line with our expectations.

“Holistically, across all of our conventional and unconventional assets, the effectiveness of our operating methods is further evidenced by an exceptionally low ~6% corporate decline rate.

"We remain on track to meet full-year expectations and are confident that we will end the year with a strong financial and operational foundation from which we can deliver more growth next year and beyond.” 

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What analysts say

In November, broker First Berlin lifted its target price to 160p from 150p

The impetus for this upgraded target was DGOC’s increase in its third-quarter dividend.

In turn, the improved dividend was the result of greater production volumes thanks to acquired assets - in the Carbon Energy and EQT transactions – and the company’s stated policy for returning cash flow to shareholders.

“DGOC's target is that not less than ca. 40% of adjusted free cash flow, defined as adjusted EBITDA (hedged) less maintenance capex, interest expense and well retirement costs, should be paid out as dividends,” First Berlin analyst Simon Scholes said.

“On our forecasts, the payout ratio on this basis at the current dividend level will be 44% this year and 48% in 2021.”

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