Introduction
I am not an income investor or a dividend junkie. However the income investors should definitely know the following dividend yielding companies that entered recently into the dividend world. These companies offer a very good yield annually and they bring a low risk of dividend sustainability as long as the oil price for WTI remains at $85/bbl or higher.
Some folks will ask: What about the YOY growth for these stocks? Will we sacrifice the growth for an 8% sustainable yield annually? I have to say that the perfect case scenario is that we would not have to choose between growth or yield but we could have both. However the real thing is that we are left somewhere in the middle ground and we have to balance between growth and yield. In the real world, we will have to give up or sacrifice some growth for a higher yield. I believe many income investors wouldn't mind a stock that yielded 7% and higher with small growth YOY.
The Companies
1) Pinecrest Energy (PNCGF in the US, PRY in Toronto): It is a light oil producer which acquired Spartan Oil Corp. (SRTNF) a few weeks ago. The combined company has an enterprise value approaching $1 billion and it produces approximately 6,500 boepd (91% oil and liquids) currently, so it trades for $130,000/boepd. I know this metric is not a bargain.
In addition, the combined company has 30 mboe as of the latest December 2011 Reserves report, which gives a $30 per mboe valuation. For sure, this is not a low metric either.
The forecasted 2013 capital spending and dividend payments are expected to represent approximately 103.8% of the funds from operations. Pinecrest's existing executive team, led by Wade Becker , will manage the combined company. Subject to the completion of the transaction, Pinecrest's board of directors has approved an initial annualized dividend of $0.155 per share that is anticipated to be declared in the first month subsequent to the completion of the transaction. Based on Pinecrest's closing share price on Nov. 30, 2012 of $1.69, the dividend translates to a 9% yield.
The credit facility for the new company will be around $200 million and the capital expenditures will continue to be focused in the Cardium light oil resource play in the Pembina area of central Alberta and the Slave Point light oil play in Otter/Evi and Red Earth areas of northern Alberta. All the acreage is located in Canada.
2) Transportadora de Gas del Sur (TGS, Financial): This is an Argentinean company that operates in three segments: natural gas transportation, natural gas liquid production and commercialization, and midstream services and telecommunications. It trades well below its book value (PBV=0.5) and it has a low P/E of 5 for 2012.
Its largest segment converts natural gas to liquid petroleum which is sold to the world markets. Its second largest segment has pipelines (most of them are owned and the rest of them are leased) that transport about 60% of all of Argentina's Gas.
This company is restricted from having its own retail gas business so it actually transports and resells natural gas to retailers. Its contracts are regulated and performed at a fixed rate. This sector is an oligopoly in Argentina as there is currently only one major pipeline competitor.
YPF S.A. (YPF) found a huge deposit of unconventional natural gas in late 2011 that would be equivalent to a quarter of Argentina's proven reserves. This discovery is in close proximity to two existing lines of Transportadora and thus it could help insure the company's future revenue growth.
The company has been paying a dividend during the last five years and the last dividend ($1.48) was a lofty one although it was an abnormally large one-time distribution. In the past, it paid annual dividends at the $0.02 to $0.03 range. Although Transportadora has no specific dividend policy, I think that an annual dividend of $0.05 is sustainable. Based on the company's closing share price on Nov. 30, 2012 at $1.50, this $0.05 dividend translates to a 7.5% yield.
It also has to be noted that this company operates in Argentina, whose government nationalized the assets of YPF in April 2012. Although this company definitely deserves a look and there have not been any new nationalization movements since April 2012, an investor has to take this kind of risk into account too.
3) Twin Butte (TBTEF in the US, TBE in Toronto): It is an oil company which produces primarily heavy oil from its conventional wells. Its total is currently 19,100 boepd (89% oil and liquids). The enterprise value is almost $900 million currently so it trades for $47,000/boepd. It has 2P reserves of 60 mboe so it trades for $11.50 per mboe.
Twin Butte has acquired four companies (Emerge, Avalon, Wildmere and Waseca) during the last 12 months. The latest M&A deal was the acquisition of the privately held Waseca. Subsequent to closing the Waseca transaction, the company increased its monthly dividend by 6.7% effective with the November 2012 dividend to $0.016 per share. Based on the company's closing share price on November 30, 2012 of $2.87, the dividend translates to an almost 7% yield.
The company has a focus on a heavy oil holding of 400,000 net acres with most of this acreage in the greater Lloydminster area along the Alberta and Saskatchewan of Canada.
4) Longview Oil (LGVWF in the US, LNV in Toronto): It is a new oil producer with a 6,100 boepd (75% oil and liquids) production. The current enterprise value is $400 million so it trades for only $66,000/boepd. It has 2P reserves of 38 mboe so the company trades at a low $10.50 per mboe ratio.
Anyone willing to take a long position on Longview must check Advantage Oil (AAV) first. Advantage Oil still holds 45% of Longview, making up its management. Longview and Advantage have also entered into a technical services agreement, which provides for the shared services required to manage Longview's activities and govern the allocation of general and administrative expenses between the parties. As a result, Longview has access to a broader range of technical and administrative personnel than would otherwise be available to an entity of a similar size and Longview will benefit from Advantage's experience and knowledge relating to its assets. The aforementioned technical services agreement with Advantage will also assist Longview in maintaining lower than average general and administrative costs on a per unit of production basis. That being said, Longview's corporate developments and operational future is strongly associated with Advantage.
This company is relatively new in the dividend world as it initiated the dividend program one year ago. It is worth noting that based on Longview's closing share price on Nov. 30, 2012 of $6.01, the dividend translates to a yield as high as 10%.
Longview holds 190,000 net acres in West Central Alberta, Southeast Saskatchewan and the Lloydminster area of Saskatchewan of Canada.
5) Whitecap Resources (SPGYF in US market, WCP in Toronto): This is another oil and natural gas producer with a production 17,000 boepd (71% oil and liquids) currently. The enterprise value is $1.35 billion, trading for $79,000 per flowing barrel.
The company expects to exit 2012 with net debt of $335 million on a $450 million credit facility. The debt to funds from operations ratio stands at 1.8x currently. It has 2P reserves of 70.7 mboe based on the December 2011 independent reserve reports, so the company trades for a decent $19 per mboe.
According to the company, the basic payout ratio for 2013 is expected to be 32% and it anticipates total capital spending and dividend payments to represent less than 95% of their funds from operations. The company announced its transition to a dividend paying company two weeks ago. It believes that over the next three years it is capable of providing a reliable and sustainable dividend of $0.60 per share per year with the objective to increase the dividend paid over time while providing 3% to 5% annual per share growth. Based on Whitecap's closing share price on Nov. 30, 2012 of $8.59, the dividend translates to a 7% yield.
After acquiring two companies (Compass Petroleum and Midway Energy) during the last nine months, it has four core areas in Canada: Peace River Arch, Garrington and Pembina in Alberta, and the Viking play in south west Saskatchewan.
6) Renegade Petroleum (RPTTF in the US, RPL in Toronto): It is a light oil producer who entered into an asset purchase agreement with a Canadian senior producer few weeks ago to acquire certain strategic light oil and gas assets within its existing southeast Saskatchewan core area for a cash consideration of approximately $405 million. The acquired company produces 3,600 boepd (94% light oil). Renegade doubles its production this way and the pro forma Renegade produces 7,800 boepd (95% oil and liquids) currently. Once the acquisition is completed, the company will initiate a monthly dividend of $0.0192 per share which gives an annualized yield of 10% based on the closing price on Nov. 30, 2012.
The enterprise value (pro forma) will be almost $700 million based on the current stock price, so it trades for $90,000 per flowing barrel. Renegade has 2P reserves of 30.6 mboe based on the independent reserve reports date Dec. 31, 2011 and updated to Aug. 31, 2012 by a member of Renegade's management who is a qualified reserves evaluator in accordance with National Instrument 51-101. The company trades for $23 per mboe which is not a low ratio.
The company holds two core plays of southeast Saskatchewan (Bakken and Spearfish) along with the Viking play in west central Saskatchewan of Canada. Renegade also holds significant land at the Slave Point oil play in Red Earth but due to the transformational shift in the corporate strategy, it does not anticipate to allocate capital there for the remainder of 2012.
Conclusion
The long-term dividend income investor does not like the daily market gyrations and buying the companies above, is an investing strategy that requires less daily attention with better sleep at night. However an investor has to define what works best for him or her and act accordingly.
I am not an income investor or a dividend junkie. However the income investors should definitely know the following dividend yielding companies that entered recently into the dividend world. These companies offer a very good yield annually and they bring a low risk of dividend sustainability as long as the oil price for WTI remains at $85/bbl or higher.
Some folks will ask: What about the YOY growth for these stocks? Will we sacrifice the growth for an 8% sustainable yield annually? I have to say that the perfect case scenario is that we would not have to choose between growth or yield but we could have both. However the real thing is that we are left somewhere in the middle ground and we have to balance between growth and yield. In the real world, we will have to give up or sacrifice some growth for a higher yield. I believe many income investors wouldn't mind a stock that yielded 7% and higher with small growth YOY.
The Companies
1) Pinecrest Energy (PNCGF in the US, PRY in Toronto): It is a light oil producer which acquired Spartan Oil Corp. (SRTNF) a few weeks ago. The combined company has an enterprise value approaching $1 billion and it produces approximately 6,500 boepd (91% oil and liquids) currently, so it trades for $130,000/boepd. I know this metric is not a bargain.
In addition, the combined company has 30 mboe as of the latest December 2011 Reserves report, which gives a $30 per mboe valuation. For sure, this is not a low metric either.
The forecasted 2013 capital spending and dividend payments are expected to represent approximately 103.8% of the funds from operations. Pinecrest's existing executive team, led by Wade Becker , will manage the combined company. Subject to the completion of the transaction, Pinecrest's board of directors has approved an initial annualized dividend of $0.155 per share that is anticipated to be declared in the first month subsequent to the completion of the transaction. Based on Pinecrest's closing share price on Nov. 30, 2012 of $1.69, the dividend translates to a 9% yield.
The credit facility for the new company will be around $200 million and the capital expenditures will continue to be focused in the Cardium light oil resource play in the Pembina area of central Alberta and the Slave Point light oil play in Otter/Evi and Red Earth areas of northern Alberta. All the acreage is located in Canada.
2) Transportadora de Gas del Sur (TGS, Financial): This is an Argentinean company that operates in three segments: natural gas transportation, natural gas liquid production and commercialization, and midstream services and telecommunications. It trades well below its book value (PBV=0.5) and it has a low P/E of 5 for 2012.
Its largest segment converts natural gas to liquid petroleum which is sold to the world markets. Its second largest segment has pipelines (most of them are owned and the rest of them are leased) that transport about 60% of all of Argentina's Gas.
This company is restricted from having its own retail gas business so it actually transports and resells natural gas to retailers. Its contracts are regulated and performed at a fixed rate. This sector is an oligopoly in Argentina as there is currently only one major pipeline competitor.
YPF S.A. (YPF) found a huge deposit of unconventional natural gas in late 2011 that would be equivalent to a quarter of Argentina's proven reserves. This discovery is in close proximity to two existing lines of Transportadora and thus it could help insure the company's future revenue growth.
The company has been paying a dividend during the last five years and the last dividend ($1.48) was a lofty one although it was an abnormally large one-time distribution. In the past, it paid annual dividends at the $0.02 to $0.03 range. Although Transportadora has no specific dividend policy, I think that an annual dividend of $0.05 is sustainable. Based on the company's closing share price on Nov. 30, 2012 at $1.50, this $0.05 dividend translates to a 7.5% yield.
It also has to be noted that this company operates in Argentina, whose government nationalized the assets of YPF in April 2012. Although this company definitely deserves a look and there have not been any new nationalization movements since April 2012, an investor has to take this kind of risk into account too.
3) Twin Butte (TBTEF in the US, TBE in Toronto): It is an oil company which produces primarily heavy oil from its conventional wells. Its total is currently 19,100 boepd (89% oil and liquids). The enterprise value is almost $900 million currently so it trades for $47,000/boepd. It has 2P reserves of 60 mboe so it trades for $11.50 per mboe.
Twin Butte has acquired four companies (Emerge, Avalon, Wildmere and Waseca) during the last 12 months. The latest M&A deal was the acquisition of the privately held Waseca. Subsequent to closing the Waseca transaction, the company increased its monthly dividend by 6.7% effective with the November 2012 dividend to $0.016 per share. Based on the company's closing share price on November 30, 2012 of $2.87, the dividend translates to an almost 7% yield.
The company has a focus on a heavy oil holding of 400,000 net acres with most of this acreage in the greater Lloydminster area along the Alberta and Saskatchewan of Canada.
4) Longview Oil (LGVWF in the US, LNV in Toronto): It is a new oil producer with a 6,100 boepd (75% oil and liquids) production. The current enterprise value is $400 million so it trades for only $66,000/boepd. It has 2P reserves of 38 mboe so the company trades at a low $10.50 per mboe ratio.
Anyone willing to take a long position on Longview must check Advantage Oil (AAV) first. Advantage Oil still holds 45% of Longview, making up its management. Longview and Advantage have also entered into a technical services agreement, which provides for the shared services required to manage Longview's activities and govern the allocation of general and administrative expenses between the parties. As a result, Longview has access to a broader range of technical and administrative personnel than would otherwise be available to an entity of a similar size and Longview will benefit from Advantage's experience and knowledge relating to its assets. The aforementioned technical services agreement with Advantage will also assist Longview in maintaining lower than average general and administrative costs on a per unit of production basis. That being said, Longview's corporate developments and operational future is strongly associated with Advantage.
This company is relatively new in the dividend world as it initiated the dividend program one year ago. It is worth noting that based on Longview's closing share price on Nov. 30, 2012 of $6.01, the dividend translates to a yield as high as 10%.
Longview holds 190,000 net acres in West Central Alberta, Southeast Saskatchewan and the Lloydminster area of Saskatchewan of Canada.
5) Whitecap Resources (SPGYF in US market, WCP in Toronto): This is another oil and natural gas producer with a production 17,000 boepd (71% oil and liquids) currently. The enterprise value is $1.35 billion, trading for $79,000 per flowing barrel.
The company expects to exit 2012 with net debt of $335 million on a $450 million credit facility. The debt to funds from operations ratio stands at 1.8x currently. It has 2P reserves of 70.7 mboe based on the December 2011 independent reserve reports, so the company trades for a decent $19 per mboe.
According to the company, the basic payout ratio for 2013 is expected to be 32% and it anticipates total capital spending and dividend payments to represent less than 95% of their funds from operations. The company announced its transition to a dividend paying company two weeks ago. It believes that over the next three years it is capable of providing a reliable and sustainable dividend of $0.60 per share per year with the objective to increase the dividend paid over time while providing 3% to 5% annual per share growth. Based on Whitecap's closing share price on Nov. 30, 2012 of $8.59, the dividend translates to a 7% yield.
After acquiring two companies (Compass Petroleum and Midway Energy) during the last nine months, it has four core areas in Canada: Peace River Arch, Garrington and Pembina in Alberta, and the Viking play in south west Saskatchewan.
6) Renegade Petroleum (RPTTF in the US, RPL in Toronto): It is a light oil producer who entered into an asset purchase agreement with a Canadian senior producer few weeks ago to acquire certain strategic light oil and gas assets within its existing southeast Saskatchewan core area for a cash consideration of approximately $405 million. The acquired company produces 3,600 boepd (94% light oil). Renegade doubles its production this way and the pro forma Renegade produces 7,800 boepd (95% oil and liquids) currently. Once the acquisition is completed, the company will initiate a monthly dividend of $0.0192 per share which gives an annualized yield of 10% based on the closing price on Nov. 30, 2012.
The enterprise value (pro forma) will be almost $700 million based on the current stock price, so it trades for $90,000 per flowing barrel. Renegade has 2P reserves of 30.6 mboe based on the independent reserve reports date Dec. 31, 2011 and updated to Aug. 31, 2012 by a member of Renegade's management who is a qualified reserves evaluator in accordance with National Instrument 51-101. The company trades for $23 per mboe which is not a low ratio.
The company holds two core plays of southeast Saskatchewan (Bakken and Spearfish) along with the Viking play in west central Saskatchewan of Canada. Renegade also holds significant land at the Slave Point oil play in Red Earth but due to the transformational shift in the corporate strategy, it does not anticipate to allocate capital there for the remainder of 2012.
Conclusion
The long-term dividend income investor does not like the daily market gyrations and buying the companies above, is an investing strategy that requires less daily attention with better sleep at night. However an investor has to define what works best for him or her and act accordingly.
