Tourmaline Oil (TSX:TOU) is likely one of the few shares hitting all the proper monetary levers.
Canada’s largest pure gasoline producer reported one other quarter of blockbuster earnings on July 27, which was consistent with expectations. It has introduced yet one more particular dividend, a 3rd one this yr. Whereas broader markets are reeling beneath strain, Tourmaline Oil inventory stands out amongst high performers, returning nearly 85% this yr.
Tourmaline Oil experiences stable Q2 numbers
Tourmaline Oil reported report free money move of $1.1 billion for the quarter ended June 30, 2022. Due to greater pure gasoline costs and better manufacturing, the corporate noticed huge monetary development within the quarter. Notably, it far exceeded its long-term internet debt goal through the quarter. On the finish of it, Tourmaline had internet debt of $430 million, a lot decrease than the focused $1 billion.
Tourmaline declared a particular dividend of $2.00 per share to be paid on August 12. Within the final 12 months, it has paid a complete dividend of $6.28 per share, implying an annual yield of 9%!
That’s a terrific whole return from the gasoline big. Canadian peer vitality bigwigs yield round half of that for the time being.
Steadiness sheet energy enchancment continues
With these windfall beneficial properties, Tourmaline is in a lot stronger form in the previous few quarters. The stability sheet has turn into sounder with a powerful liquidity place and low leverage. Whereas its debt-to-equity ratio was near 0.2x through the pre-pandemic interval, it has come all the way down to 0.05x just lately.
Canadian vitality firms are deploying their incremental money flows for debt repayments and returning the remainder of it to shareholders. A number of of them are choosing the share buyback route, and a few for dividend hikes. Tourmaline has most well-liked the latter route, the place a big chunk has gone to greater dividends. Because the begin of final yr, the corporate has elevated its common quarterly dividend 5 occasions and issued a particular dividend 4 occasions.
Importantly, the beneficiant dividend funds underline the corporate’s stability sheet energy and the administration’s conviction in its future earnings development.
What’s subsequent for Tourmaline Oil?
At a market cap of $25 billion, Tourmaline Oil is Canada’s largest and North America’s fifth-largest pure gasoline producer. It has seen huge development within the final couple of years. Notably, scale and engineering design enhancements have improved the margin profile. Whereas its gross margins averaged round 60% within the pre-pandemic interval, they’ve been persistently above 70% in the previous few years.
The administration expects free money flows of $3.5 billion for 2022 and 2023 every. That’s method greater than its free money move of $1.49 billion in 2021.
Given the robust development prospects and superior dividend profile, TOU inventory presently appears undervalued. It may proceed to rally greater on the again of gasoline worth energy.
Even when oil-focused shares witness a pullback on comparatively risky crude oil costs, gas-focused shares like TOU will probably keep robust. That’s as a result of pure gasoline costs ought to stay elevated for longer resulting from seasonally greater demand and constrained provides in Europe.
