Interactive Investor

Shares round-up: Diversified Energy, DFS Furniture, PureTech

It’s been a day of mixed fortunes for these popular stocks, although there’s a big dividend, capital growth and upside potential on offer here.

19th March 2024 15:42

Graeme Evans from interactive investor

A blow for income investors after Diversified Energy Co (LSE:DEC) rebased its dividend was today softened by a pledge to remain among the best-yielding stocks in the FTSE 350 index.

The Alabama-based oil and gas company has recommended a June quarterly dividend of 29 US cents (22.8p), bringing the yield back in line with the historical average of 10%. The shares had been on a market leading 25%-plus prior to today’s annual results. 

Diversified said the new capital allocation framework, which will enable it to grow via strategic acquisitions as well as reduce debt and carry out share buybacks, should mean longer-term value creation for its shareholder base.

Since 2017, the company has paid more than $700 million (£550.7 million) in dividends along with approximately $110 million (£86.5 million) in share repurchases.

It said the new fixed quarterly dividend payment of 29 US cents will be sustainable for at least three years and deliver a top-quartile FTSE 350 yield higher than most US listed peers.

Chief executive Rusty Hutson said the dividend recalibration took into account current commodity prices and expected future capital requirements. He added: “We understand the importance of this decision to our shareholders and do not take the decision lightly.”

Despite the price headwinds in the natural gas market, Diversified grew annual adjusted earnings by about 8% to $543 million (£427.2 million) and generated $219 million (£172.3 million) in free cash flow.

The company’s assets primarily consist of long-life, low-decline natural gas wells located within the Appalachian Basin and Central Region of the United States. Examples include the Barnett operating area, which during the early 2000s was the largest natural gas shale play in the US. 

Diversified achieved record production and lower unit costs during 2023 but a weaker US gas price has impacted its shares, which fell 44% last year. The stock dropped 57p to 866.5p following the results but broker Peel Hunt continues to have a price target of 3,000p.

Other big fallers in the FTSE All-Share included DFS Furniture (LSE:DFS) after it said demand weakened significantly in the last two months. Order volumes are down 16% year-on-year in January and February, compared with a decline of 10% in the first half of its financial year.

Annual profit guidance is now between £20 million and £25 million, which excludes the risk of Red Sea shipping delays and compares with £30-£35 million seen in September.

On a brighter note, chief executive Tim Stacey reported a fresh market share record of 38.5% and further progress towards meeting an 8% margin target.

Shares fell 7.8p to 105p but analysts at Stifel remain supportive through a price target of 150p, adding that DFS is well placed for the longer term.

They added: “With market volumes over 20% below pre-Covid levels, we still see significant upside to the stock as and when the consumer recovery does materialise.”

The best-performing stock in the FTSE All-Share was PureTech Health (LSE:PRTC) after the schizophrenia treatment business it helped establish was bought by Bristol-Myers Squibb Co (NYSE:BMY) for $14 billion (£11 billion) yesterday.

PureTech realised $293 million (£230.5 million) proceeds from its remaining stake in Karuna, which means it has generated $1.1 billion (£870 million) from an initial investment of $18.5 million.

It has pledged to return $100 million (£78.7 million) to shareholders by way of a tender offer at 250p, a 25% premium to last night’s price and representing about 14% of the company’s market value. The shares jumped 17.5p to 221.5p, their highest level since September.

ii Head of Editorial Lee Wild own shares in Diversified Energy Company.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.