Vermilion Energy (TSX:VET)(NYSE:VET) and TORC Oil & Gas (TSX:TOG) are trading at multi-year lows and offer yields of 10% and 7.6%, respectively. Which is more likely to cut its dividend?
There are some things that management can’t control, such as commodity prices, and there are some things that they can control, such as capital allocation (i.e., how much cash flow to allocate for reducing debt, sustaining the business, investing in growth projects, and paying dividends).
Looking at how the companies have handled their capital allocation in the past can give an idea of which oil & gas producer will more likely cut its dividend.
Vermilion’s stock has maintained or increased its cash distribution or dividend every year since 2003. Since 2003, VET’s total payout ratio (which accounts for sustaining capital, growth capital, and dividend) has expanded to as high as 162%, but the company didn’t once cut the dividend.
VET places a high priority on its dividend. If history is indicative of the future, then VET will try to maintain the dividend even when the operating environment is tough.
Notably, VET doesn’t have the tendency to buy back stock like other energy companies, such as Suncor Energy (TSX:SU)(NYSE:SU) and Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ). Last year, the capital the company returned to shareholders was 100% dividends.
In fact, for more than 20 years, the company has been increasing the share count as the need arose. Thankfully, despite the climbing number of outstanding shares, there hasn’t been …
Unfortunately, we have maxed the word limit for this excerpt. But you can read the full Seeking Alpha article (with images and graphs) here: 1 Of These Energy Stocks Is More Likely To Cut Its Dividend
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Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.
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