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Cash flow from acquired assets should also provide a dividend boost

Diversified Gas & Oil (DGOC:AIM) 130p

Gain to date: 44%

Original entry point: 
Buy at 90p, 22 February 2018

Our positive call on AIM oil producer Diversified Gas & Oil (DGOC:AIM) continues to be rewarded with the company completing its largest acquisition to date (29 Jun).

The $575m acquisition of assets from shale producer EQT is located in the company’s traditional base in the Appalachia basin and is expected to double output to 60,000 barrels of oil equivalent per day.

Sums by analysts at banking group Mirabaud suggest the deal will more than treble annual earnings and more than double the dividend payout with the market value of the group hitting $823m at the current share price.

The deal is being funded by placing $250m worth of new shares at 97p but shareholders are at least being heavily compensated for the resulting dilution. Back of an envelope calculations suggest the company could offer a dividend yield of nearly 7%.

This transaction is consistent with the company’s strategy of acquiring conventional (mainly) natural gas assets from big operators who are more interested in chasing the higher volumes associated with shale deposits.

GIU - Gas & Oil

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