Although hydrocarbon exploration firm Pioneer Natural Resources (US:PXD) presents a risky narrative – shedding 9% of equity value on a year-to-date basis – investors deploying a dividend recapture strategy could find PXD stock compelling.
Featuring a mix of relevant fundamental catalysts and a comparatively undervalued fiscal profile, Pioneer shares may rise following the dividend announcement, better enabling a profitable exit.
To quickly summarize, the dividend recapture strategy involves purchasing shares before the ex-dividend date – or the first business day after a stock dividend is paid – to receive the passive income payout. Later, the investor sells the stock in question while pocketing the dividend. From there, the investor is free to rebuy the same stock via the aforementioned tactic or seek out other potentially viable opportunities.
Rinse, repeat.
On paper, the concept sounds simple enough. However, prospective investors should recognize that every market method carries risks. For dividend recapture, the underlying stock can fall more than what the dividend paid. In addition, participants must carefully monitor brokerage fees to help ensure a net profitable transaction.
For Pioneer specifically, its ex-dividend date is this Friday, March 3. Further, with a quarterly cash dividend of $5.58, its current yield is 2.79%. Ranking near the upper end of the spectrum, PXD stock in exchange carries higher-than-average market risk. Most notably, aside from its YTD performance, shares slipped nearly 17% in the trailing year.
That said, PXD stock may turn its performance around, based on enthusiasm for its underlying industry. According to the International Energy Agency (IEA) earlier this year, China’s economic reopening could boost global oil demand to a new record high.
“Two wild cards dominate the 2023 oil market outlook: Russia and China,” the energy watchdog stated in its January oil report. “Russian supply slows under the full impact of sanctions (while) China will drive nearly half this global demand growth even as the shape and speed of its reopening remains uncertain.”
Another catalyst that could bolster PXD stock beyond its ex-dividend date is its relatively undervalued fiscal profile. For one thing, Pioneer’s trailing-one-year price-earnings ratio sits at 6.12 times. In contrast, the integrated oil and gas industry’s average trailing PE is 6.71x.
In addition, the independent oil and gas exploration firm’s shares scored 77.56 out of 100 on Fintel’s Value Index. A score of 100 represents the most undervalued investment.
Finally, PXD stock rates highly in Fintel’s Quality Index, scoring a 91.11. Bolstering this statistic is the underlying enterprise’s return on equity, which stands at 34%. The magnitude of this metric indicates an extremely high-quality business and an effective leadership team.
This article originally appeared on Fintel
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