Diversified Energy also seeks out unloved assets, specifically shale gas and oil fields in America.
Set up by veteran oil man Rusty Hutson, the group has grown at pace since joining AIM in early 2017. Midas recommended the firm that same year, when Hutson was producing the equivalent of 11,000 barrels of oil a day and the share price was 71p.
By 2019, the shares were £1.13 and production had soared to 70,000 barrels a day. Since then, Diversified has moved to the main London market, joined the FTSE250 and increased production to the equivalent of more than 130,000 barrels a day, 95 per cent of which is gas. At the beginning of last week, the shares were trading at £1.29.
Going cheap: Midas recommended Diversified when the share price was 71p
On Wednesday however, a report was published, alleging that Diversified’s wells are leaking methane gas and damaging the environment. Hutson hit back, pointing out that the report focused on a tiny fraction of the firm’s 60,000 wells and highlighting Diversified’s environmental track record, under which emissions have been falling significantly year-on-year. But investors ran scared and by close of play last week, Diversified shares were trading at £1.07.
At this level, the stock is a buy. When Hutson floated the business, he promised to pay generous dividends to shareholders.
He has been true to his word. Payments have risen steadily each year and analysts forecast a 16 cent (11.5p) dividend for 2021, putting the stock on a yield of almost 11 per cent, supported by robust profits and cash flow.
Midas verdict: Diversified has become one of the leading gas producers in the US and sales are soaring as gas prices rocket. The methane allegations have hit the shares hard but Hutson is fighting back and the stock should recover. Existing shareholders should hold and take comfort in the dividend yield. New investors could also find the stock attractive at current levels.
Traded on: Main market Ticker: DEC Contact: div.energy or 001 205 408 0909
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