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A 29% dividend yield could be the highest the market has ever seen. FTSE 250.
I'm going to dig into this company and tell you if I think it's the best investment of my life.
Brilliant stock picks don't happen very often. And you don't have to be a genius to make money in the stock market. Ask Warren Buffett.
“Investing is not a game where the guy with an IQ of 160 beats the guy with an IQ of 130” he famously said. “What you need is the temperament to control the impulses that get other people into trouble..”
So what is going on here?
To diversify
Diversified Energy Company (LSE:DEC) is a mid-sized company with a market capitalization of £500m.
Its primary business is acting as a producer and transporter of onshore natural gas in the United States.
For shareholders, the five years between 2017 and 2022 were pretty spectacular. The share price more than doubled in that time.
And at first glance it seems like the company is using its money very well. Data suggests that over the last 12 months it has a healthy return on equity of 46%.
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The shares peaked at around £22 per share in August 2022. But since then the share price has sunk like a stone.
And it's not entirely clear why.
Shares have plunged 20% since the beginning of 2024 and 60% in the last 12 months.
It could be that investors are selling stocks perceived as risky ahead of an upcoming recession. But I wouldn't trust that to be the only reason.
Debt agreements
The company reports its profits and dividends in US dollars, rather than British pounds. In its latest full-year results, it reported net debt of $1.4bn, with cash of just $7.3m.
With US interest rates soaring to 15-year highs in 2023, companies of all types have been forced to pay more on their debts. Therefore, the market may believe that holding this stock is substantially riskier than before.
This does not take into account any specific debt agreements the company has made.
In October 2023, the company canceled its plans to sell its shares in the NYSE after continued declines in share price.
Move
In December 2023, bosses took the unusual step of undergoing a 20-for-1 share consolidation, which saw the declared quarterly dividend of 4.375 cents per share rise to a mammoth 87.5 cents per share.
With the current share price falling to around £9.60, that generates a dividend yield of 29%.
In general, markets respond poorly when companies take actions that are not communicated in advance.
The shares were listed in New York at the end of December 2023.
Then, in early January, the company raised $200 million by selling some of its natural gas assets in Appalachia.
In a Jan. 16 statement, the company said it was baffled by the sudden drop in its stock price. Has been “no material changes“To its financial or operational conditions,” he said. This is the same statement the company issued in October 2023, after big sales.
What to do now
You probably already know my conclusion.
For me, buying shares of a company with a 29% dividend yield would be giving in to “the impulses that get other people into trouble”.
