In a world full of financial aspirations, the idea of passive income is a beacon of hope for many. Achieving a substantial second income through a well-crafted portfolio is a goal that is both desirable and attainable. The key to unlocking this dream lies in identifying the right shares to invest in – those with strong growth potential and sustainable dividend yields.
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Oil investing:
- With global conflicts on the rise, it is crucial to find ways to safeguard against economic risks. Oil, being a cornerstone resource, presents a unique opportunity for investors. Diamondback Energy (NASDAQ:FANG) emerges as a solid defensive play in this realm. Operating predominantly in the Permian Basin in the US, the company minimizes its exposure to disruptions in the global supply chain.
- Furthermore, geopolitical tensions often lead to an increase in oil prices, a factor that could potentially boost Diamondback’s share value during times of conflict.
- Offering a current yield of 6.35%, Diamondback Energy appears to be a dream come true for income-seeking investors. Moreover, the share price has seen a remarkable increase of 865% since 2012.
- Future Growth Predictions:
- While past performance is not an absolute indicator of future outcomes, there is optimism surrounding Diamondback Energy’s near-term prospects. Analysts foresee a 44% revenue growth for the company by 2025.
- Additionally, the average price target set by 27 analysts over a 12-month period implies a 31.5% gain, largely attributed to the ongoing merger between Diamondback and Endeavor Energy Resources.
- However, a few years down the line, potential price volatility is anticipated in 2026 and 2027. This phase might involve revenue contractions due to integration challenges following the merger before returning to a more moderate growth trajectory.
Investing in quality:
Warren Buffet’s investment philosophy emphasizes the importance of being highly selective in one’s investment choices. Investing in a handful of high-quality companies over a lifetime is seen as a more prudent approach, steering clear of impulsive decisions.
At The Motley Fool, we advocate for a long-term investment strategy – focusing on companies that can be held for a decade or longer, enabling them to grow steadily over time. Diamondback Energy emerges as a compelling candidate for long-term inclusion in a well-diversified portfolio.
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Managing Market Volatility:
- Despite its strong potential, Diamondback Energy may face periods of significant price fluctuations. To counter this, a pound-cost averaging approach could be considered – continuously increasing one’s position regardless of short-term market fluctuations to average out volatility.
- While investing a lump sum currently carries risks due to Diamondback not being categorized as a growth stock and maintaining a relatively high valuation, adopting a gradual investment approach can potentially reduce exposure to market turbulence.
- Stable Texan Oil Prices:
- Diamondback Energy’s dividend sustainability is closely linked to oil prices. Persisting geopolitical tensions and disruptions in the supply chain could keep oil prices elevated, enabling the company to generate robust free cash flows, thus supporting its dividend payouts.
- Looking ahead, projections indicate a softening in oil prices. Presently, Permian Basin crude oil is priced around $71 per barrel, with forecasts suggesting a range of $60 to $79 per barrel by 2025 and 2026. This implies that while the dividend remains steady for now, monitoring potential price variations is advisable for investors seeking income opportunities.
Considering the prevailing global uncertainties, including geopolitical unrest, adding Diamondback Energy to one’s portfolio could serve as a strategic move. This maneuver not only provides a reliable income source through dividends but also acts as a protective measure against market volatility, safeguarding one’s investments. In a landscape rife with uncertainty, this calculated step could pave the way for stable financial growth and security.
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