Diamondback Energy analysis: grey mouse or perfect opportunity for dividend investors?

Oil producers and energy companies are doing well. So it certainly doesn't hurt to take a closer look at such companies. This time on one lesser-known candidate.

A basic overview

Diamondback Energy $FANG focuses on oil and gas production in the US, primarily in West Texas and New Mexico. It is one of the largest independent producers in the area. Diamondback is well positioned for growth given its unconventional development and large oil and gas reserves. Diamondback has a strong balance sheet and low costs, which strengthens its free cash position and resilience to commodity price declines. For example, operating margin was 49% in 2019, well above the industry average.

A key risk is the decline in oil and gas prices, as 85% of the company's revenue comes from the sale of these commodities. In the event of a prolonged price decline, Diamondback's results would be negatively impacted. Other risks include rising operating costs, regulatory changes and environmental liability.