Smart Dividend Portfolio Edition #54: Permian Powerhouse
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Dear Investor,
Welcome to the 54 th edition of TipRanks’ Smart Dividend Portfolio & Newsletter.
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Market-Moving News: March 31, 2025
Stocks closed another turbulent week on a down note, with Friday marking the second-worst day of 2025 for U.S. equities. The Dow Jones Industrial Average (DJIA) ended the week with a loss of 0.96%, while the S&P 500 (SPX) fell by 1.53%, on course for its worst month since September 2023. Meanwhile, the tech benchmarks Nasdaq Composite (NDAQ) and Nasdaq-100 (NDX) dropped by 2.59% and 2.39%, respectively.
Stocks tried to keep up last week’s positivity, continuing their rise at the beginning of the week. However, markets reversed course on Wednesday as President Donald Trump’s announcement of impending auto tariffs intensified investor concerns about escalating trade tensions and potential retaliatory measures.
Thursday saw more selling pressure, with stocks sliding across the board. The final Q4 2024 GDP growth reading – coming in at 2.4% annualized – confirmed that the economy began slowing down even before the tariffs were announced, and investors fretted that Trump’s policies would amplify the economic slowdown.
Interestingly, despite a notable slowdown from Q3’s 3.1% pace, the fourth quarter’s growth surpassed initial estimates thanks to a surge in corporate profits over the previous quarter. Moreover, Q4 PCE inflation – the Federal Reserve’s preferred inflation gauge – was revised lower, underscoring the resilience of the U.S. economy at the end of last year. That strength, according to some analysts, may help the economy weather current policy uncertainties and downbeat consumer sentiment without slipping into a recession.
Friday brought more bad news on the macro front. February’s Core PCE came in hotter-than-expected at a 2.8% annual pace, reinforcing the persistence of price pressures. Meanwhile, consumer spending was weaker than economists predicted, despite better-than-expected personal income growth. The divergence between income and spending trends highlighted consumer caution about the outlook, while simultaneously weighing on growth prospects, with consumption still the key GDP driver.
The UoM Consumer Sentiment index’s final March reading further depressed investor sentiment, coming in at its lowest since November 2022 – marking a third straight monthly decline. At the same time, long-term household inflation expectations – a key Fed input – hit 4.1%, their highest level since June 2008.
As slowing spending is threatening to further drag on growth and inflation remains well above the Fed’s 2% target, the central bank finds itself in a precarious position vis-a-vis rate policy. With fears of stagflation rising, policymakers may already be behind the curve on supporting growth yet remain constrained by stubborn inflation.
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This Week’s Quality Dividend Stock Idea
Diamondback Energy (FANG) is an independent oil and natural gas company focused on the exploration, development, and production of oil and natural gas in the Permian Basin spanning Texas and New Mexico. Diamondback primarily targets unconventional shale plays and leverages horizontal drilling and hydraulic fracturing technologies to maximize output.
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Oil Rise
Diamondback Energy was founded in 2007 in Midland, Texas, with an aim to focus specifically on oil and gas assets in the Permian Basin and became a public company through an IPO in 2012.
After going public, FANG underwent rapid growth through strategic acquisitions, increasing its acreage and production capacity. Through 2017, the energy producer expanded primarily by acquiring both land and smaller companies with assets in the Midland Basin. This approach enabled Diamondback to increase its acreage directly through land purchases, while also acquiring existing production capacity and reserves by buying out companies. These strategic acquisitions allowed Diamondback to rapidly scale up operations, boost production, and optimize efficiencies in the heart of the Permian Basin.
Today, FANG is one of the largest and most influential players in the U.S. energy-producing sector with a market capitalization of $45.6 billion, annual revenues exceeding $11 billion, and a Fortune 500 ranking of #400.
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Permian Power
Diamondback Energy has aggressively expanded its Permian Basin footprint through a series of strategic acquisitions. In 2021, the company acquired QEP Resources and Guidon Resources, strengthening its presence in the region. In February 2024, it closed a transformative $26 billion acquisition of Endeavor Energy, creating a dominant Permian pure-play. This merger not only increased Diamondback’s scale—with a combined 838,000 net acres in the Midland Basin—but also provided an opportunity to apply its industry-leading operational model to a world-class asset with high-quality, long-duration inventory.
Building on this momentum, Diamondback announced a $4.08 billion cash-and-stock acquisition of Double Eagle earlier this year. Expected to close in Q2 2025, this deal will add approximately 40,000 net acres of largely undeveloped Midland Basin assets, projected to produce 27,000 barrels of oil per day. Additionally, the company plans to accelerate the development of its non-core southern Midland Basin acreage, positioning itself for enhanced free cash flow growth from 2026 onward.
Following the Endeavor acquisition, Diamondback executed a drop-down transaction1, selling mineral and royalty interests from its Endeavor assets to FANG’s subsidiary, Viper Energy, in exchange for $1 billion in cash and 69.6 million Viper units. This move increases Diamondback’s exposure to Viper’s growth while accelerating debt reduction. By strategically divesting certain interests, the company is strengthening its balance sheet and reinforcing financial flexibility after its major acquisition spree.
In a separate development, Diamondback also announced a leadership transition: CEO Travis Stice will step down at the 2025 Annual Meeting and become Executive Chairman through 2026. President Kaes Van’t Hof will assume the CEO role and join the Board, while Jere W. Thompson III, formerly EVP of Strategy and Corporate Development, was appointed CFO in February 2025. With its executive team in place, the company signaled a shift away from large-scale M&A, calling the Double Eagle deal its last major Midland Basin move. Management plans to focus on capital returns, including stock buybacks, to enhance per-share value.
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1 – A drop-down transaction refers to a strategy where a parent company transfers assets—often producing assets or royalty interests—to an existing or newly formed subsidiary, typically to unlock value, streamline operations, or achieve tax or financing efficiencies.
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Energy Edge
Diamondback Energy has built a low-cost, vertically integrated business focused on unconventional onshore reservoirs in the Permian Basin—America’s most prolific shale region. Its strategy revolves around acquiring high-quality assets, maximizing operational efficiency, and scaling production to sustain long-term cash flow.
The Permian Basin plays a crucial role in U.S. oil and gas production, accounting for roughly 40% of the nation’s total output. Unlike mature basins like the Bakken and Eagle Ford, the Permian offers multiple stacked shale layers, allowing producers to tap into different zones vertically, making it a highly economical and productive resource.
The company’s oil exploration activities are primarily focused on horizontal development of the Spraberry and Wolfcamp formations of the Midland Basin and the Wolfcamp and Bone Spring formations of the Delaware Basin, both of which are part of the larger Permian Basin in West Texas and New Mexico. At the end of FY24, the company’s proved reserves increased 63% year-over-year to 3,557 MMBoe (million barrels of oil equivalent). As of December 31, 2024, its estimated proved reserves comprised of 50% oil, 23% natural gas and 27% natural gas liquids.
FANG primarily earns revenue through the exploration, development, and production of crude oil, natural gas, and natural gas liquids (NGLs). Additionally, FANG maintains a best-in-class cost structure, with drilling costs averaging $200 per foot (down 7% YoY in 2024) and breakeven oil prices as low as $40/barrel WTI. This enables profitability even in volatile commodity markets. Through its subsidiary Viper Energy, FANG controls midstream assets (water handling, compression), reducing third-party costs and enhancing margin retention.
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Oiling the Wheels
Diamondback Energy’s revenue and earnings growth have outpaced industry peers, driven by strategic acquisitions, expanding production, and cost-efficient operations. Over the past five years, the company has delivered a remarkable 21.7% CAGR in revenue, while EPS has soared at an impressive 60.3% CAGR—well above the industry’s typical single or low double-digit growth rates.
In the fourth quarter of 2024, the company reported adjusted earnings of $3.64 per share, exceeding consensus estimates of $3.34. Revenue surged 66.4% year-over-year to $3.71 billion, surpassing expectations of $3.55 billion. This strong performance was fueled by higher production of 475.9 MBOE/d (thousand barrels of oil equivalent per day), exceeding the upper end of its guidance range of 470 to 475 MBO/d.
Cash flow generation remains robust, with Q4 operating cash flow rising 44.2% YoY to $2.3 billion and full-year operating cash flow increasing 8.3% YoY to $6.4 billion. This financial strength supported $1.4 billion in adjusted FCF for Q4, and $4 billion for FY24. With a net debt-to-EBITDA ratio of 1.7x—below the sector average of 2.74—the company maintains financial flexibility through commodity cycles.
Despite large-scale acquisitions, Diamondback maintains strong financial health, with a low net debt-to-equity ratio of 0.35—well below the industry average of 0.45. Its “BBB” credit ratings from S&P and Fitch further highlight its balance sheet strength.
Diamondback’s strong operations and effective management are also reflected in its capital efficiency and profitability metrics. Its ROE, ROA, and ROIC, as well as its gross margins, rank in the top 20% of its industry. Meanwhile, the company’s operating and net income margins are in the top 10%.
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Fueling Growth
Diamondback Energy’s 2025 capital plan focuses on maximizing capital efficiency and free cash flow generation over volume growth. The company plans to drill approximately 460 wells and complete about 575 wells during the year, continuing to draw down on the drilled but uncompleted (DUC) backlog acquired from Endeavor, TRP, and Double Eagle. FANG anticipates $200 million in savings from utilizing DUCs, optimizing production without excessive new drilling. This approach enhances capital efficiency, with an expected ~10% improvement compared to previous projections.
To maintain financial flexibility, Diamondback aims to reduce net debt to $10 billion in the near term through asset sales and free cash flow allocation. The company plans to sell at least $1.5 billion in non-core assets to accelerate pro forma debt reduction following the Double Eagle acquisition.
Additionally, Diamondback is exploring opportunities to enhance operational efficiency and reduce costs through technological innovations, including the integration of AI-driven solutions in drilling and production processes. These advancements aim to further lower breakeven costs and improve profitability in a volatile commodity price environment.
To navigate fluctuating oil prices, Diamondback has conducted a sensitivity analysis on its free cash flow at various price levels. The company aims to achieve the same FCF per share at $67 per barrel as it did at $76 per barrel last year by optimizing capital efficiency and executing accretive acquisitions.
Diamondback projects 2025 oil production of 491.5 MBOE/d at the midpoint, a 46% year-over-year increase, with capex set between $3.8 billion and $4.2 billion. The company remains committed to capital efficiency, allocating ~80% of FY25 capex to high-return drilling in the Midland and Delaware Basins. Notably, it expects to generate 44.8 MBO (thousand barrels of oil) for every $1 million in capex, targeting $5.8 billion in FCF at current commodity prices.
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Steady Shareholder Rewards
FANG stock has declined by about 17% in the past 12 months, pressured by falling oil prices and macroeconomic concerns. However, Wall Street analysts remain bullish, forecasting an average upside of over 26% in the next 12 months. Despite some price-target reductions due to increased commodity price risks driven by the expected economic slowdown, some analysts pencil in an upside of over 30%, as FANG is seen as considerably undervalued, trading at multiples below the average for its peers in the industry. Moreover, DCF valuation models suggest the stock remains undervalued by roughly 25.7%, reinforcing its appeal as a long-term value play.
In addition to the potential for stock-price appreciation, Diamondback Energy is also a consistent dividend payer with a solid six-year track record. Since initiating its dividend in 2018, Diamondback has delivered industry-leading growth, with its quarterly dividend compounding at an average rate of ~8%. This rate of dividend growth is supported by a moderate earnings payout ratio of 38.7%. In the fourth quarter, the company raised its annual base dividend by 11% to $4 per share. The company offers a dividend yield of 3.88%, above the Energy sector’s average of 3.1%. FANG’s dividend policy strikes a balance between regular and variable payouts, prioritizing shareholder returns while ensuring sufficient reinvestment in operations.
Beyond dividends, Diamondback also returns capital to shareholders through opportunistic buybacks. FANG is committed to distributing approximately 50% of its FCF, and to date, it has repurchased around 25.8 million shares for $3.5 billion. Currently, it has $2.5 billion remaining under its buyback authorization. In FY24 alone, Diamondback returned $2.3 billion in dividends and buybacks—representing roughly 57% of its adjusted FCF. Its $6 billion buyback program, originally launched in 2021, remains uncapped and open-ended, giving management flexibility based on cash flow and market conditions.
Financially, Diamondback’s capital allocation strategy is underpinned by robust cash flow generation. At an oil price of $70 per barrel, the company expects to generate $20 per share in FCF—translating into a double-digit FCF yield at current prices. This robust financial foundation gives the company ample room to continue raising dividends while maintaining aggressive capital returns.
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Investing Takeaway
Diamondback Energy stands out as a well-run, low-cost operator with a dominant position in the Permian Basin. Its strategic acquisitions, disciplined capital allocation, and shareholder-focused approach support long-term value creation. While stock price volatility may persist, the company’s reliable dividend—with consistent growth, strong coverage, and a sector-leading yield—makes it especially compelling for income-focused investors. Backed by robust free cash flow and efficient operations, Diamondback offers a rare blend of financial resilience, stock upside, and dividend yield.
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Dividend Investor Portfolio
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Portfolio News
▣ BlackRock (BLK) has launched its first Bitcoin exchange-traded product (ETP) in Europe as it looks to expand its cryptocurrency offerings beyond North America. The company has launched its iShares Bitcoin ETP, which is domiciled in Switzerland and listed on exchanges in Paris, Amsterdam, and Frankfurt. BlackRock’s U.S.-based spot Bitcoin exchange-traded fund (ETF), iShares Bitcoin Trust ETF, is by far the largest of about a dozen spot Bitcoin ETFs listed in the U.S., with net assets or more than $50 billion.
In another development, China’s market regulator stated that it will review the sale of CK Hutchison’s deal to sell its port operations near the Panama Canal to a BlackRock-led group to ensure fair competition and safeguard public interest.
▣ The ex-dividend date for Bank of Nova Scotia (BNS) is April 1st, with the payment due on April 28th.
▣ The ex-dividend date for JPMorgan (JPM) is April 4th, with the payment due on April 30th. In another development, the Federal Deposit Insurance Corporation (FDIC) issued new guidance allowing FDIC-supervised institutions to engage in permissible crypto activities without prior approval, provided they manage risks. It rescinds FIL-16-2022 and signals a shift in approach, with Acting Chairman Travis Hill expecting this to be one of further steps to clarify banks’ role in crypto and blockchain-related activities.
▣ Kroger (KR) has filed its response and counterclaims to Albertsons’ lawsuit in Delaware’s Court of Chancery over their terminated merger agreement. Kroger alleges Albertsons secretly worked with C&S Wholesale Grocers on a separate regulatory strategy that undermined the merger. The retailer has claimed that this misconduct, revealed during antitrust trials, disqualifies Albertsons from claiming the $600M termination fee or other damages.
▣ Qualcomm (QCOM) has launched a global antitrust campaign against Arm Holdings, accusing it of restricting access to its technology and harming competition. Qualcomm argues that Arm’s shift from an open licensing model to restricting access threatens the thriving chip market and boosts its own profits. The company has filed complaints with regulators across three continents.
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Recent Trades
None at the moment, although we are considering adding a stock to our portfolio when the market conditions allow for an attractive entry point. Stay tuned.
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Portfolio Attributes
| Dividend Portfolio Yield |
Expected Dividend Growth | Expected Annual Income |
| 3.96% | +8.06% | $5,924.69 |
| Yield-on-Cost Adjusted, Weighted |
Average Analyst 12-Month Growth Outlook | 10K Per Stock at the Time of Purchase |
Current Portfolio
| Name | EX-Dividend Date | Payment Date | Yield on Cost | Annual DPS |
| Automatic Data Processing (ADP) | Jun 12, 2025 | Jul 01, 2025 | 2.46% | $6.16 |
| Allianz SE ADR (ALIZY) | May 09, 2025 | May 28, 2025 | 6.09% | $1.52 |
| Amgen (AMGN) | May 16, 2025 | Jun 09, 2025 | 3.27% | $9.52 |
| BlackRock (BLK) | Jun 09, 2025 | Jun 26, 2025 | 2.61% | $20.84 |
| Bank of Nova Scotia (BNS) | Jul 03, 2025 | Jul 29, 2025 | 5.98% | $4.24 |
| EOG Resources (EOG) | Apr 17, 2025 | Apr 30, 2025 | 3.06% | $3.92 |
| IBM (IBM) | May 09, 2025 | Jun 10, 2025 | 3.13% | $6.68 |
| JPMorgan Chase (JPM) | Jul 08, 2025 | Jul 31, 2025 | 3.2% | $5.60 |
| Kroger (KR) | May 15, 2025 | Jun 02, 2025 | 2.82% | $1.28 |
| LyondellBasell (LYB) | Jun 03, 2025 | Jun 10, 2025 | 5.62% | $5.36 |
| PepsiCo (PEP) | Jun 09, 2025 | Jun 26, 2025 | 3.64% | $5.44 |
| Philip Morris (PM) | Jun 23, 2025 | Jul 17, 2025 | 6.06% | $5.40 |
| Qualcomm (QCOM) | May 29, 2025 | Jun 26, 2025 | 2.36% | $3.56 |
| VICI Properties (VICI) | Jun 18, 2025 | Jul 03, 2025 | 5.22% | $1.72 |
| ExxonMobil (XOM) | May 14, 2025 | Jun 10, 2025 | 3.64% | $3.96 |
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Click here for more stock market analysis from TipRanks Macro & Markets research analyst Yulia Vaiman
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Disclaimer
The information contained in this article represents the views and opinions of the writer only, and not the views or opinions of TipRanks or its affiliates and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy, or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment, and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices, or performance.
