Energy Summary for July 5, 2019
by Stockwatch Business Reporter
Vermilion Energy Inc. (VET) edged up 10 cents to $28.37 on 844,200 shares. Its stock is not often below $30; back in 2014, it was as high as $78. A few weeks ago, it crossed a noteworthy threshold as its dividend yield surpassed 10 per cent. Investors have long had their questions about the safety of such a generous dividend. Vermilion has tried to tame these fears, pointing out on its website that since the dividend was introduced in 2003, it has been increased four times and never once reduced. The most recent increase was in April, 2018, when the monthly payout was hiked to 23 cents from 21.5 cents. The current yield (bearing in mind that the stock has edged up slightly over the last few weeks) is 9.7 per cent.
President and chief executive officer Tony Marino headed to BNN yesterday to defend the dividend. He called it "frustrating" to see the yield so high when he wholeheartedly believes in the dividend's safety. His interviewer, in typically friendly BNN fashion -- playing hardball rarely wins further interviews, after all -- made sympathetic noises over Mr. Marino's plight, and wondered whether the stock's poor performance reflects "a psychological thing" related to Vermilion's recent expansion in Canada. (Vermilion acquired a Saskatchewan light oil producer last year for $1.4-billion.) Mr. Marino acknowledged that Canadian energy headlines have been grim lately, but the new assets in Saskatchewan are in "one of the best places" anywhere. "We always try to stay in the stronger-priced products," he emphasized. That means North American light oil and condensate, and European gas. "We fund the dividend, we fund a reasonable but not unsustainable level of organic growth, and we do it within internally generated cash flow. That is the model of the company," he concluded.
His comments echoed those of about a month ago, during a non-deal road show accompanied by Canaccord Genuity analyst Dennis Fong. Mr. Fong wrote up his impressions in a research note dated June 2. "We continue to view Vermilion's dividend as being sustainable," was his very second comment. The first was that he maintains his "buy" rating and his price target of $45. His optimism stems from his estimate that, even after paying out its dividends and its $550-million budget, Vermilion will have $408-million in free cash flow this year. He reckons that Vermilion would cut its budget by up to $130-million before even thinking about touching the dividend. Despite the boosterish efforts of Mr. Fong, and now Mr. Marino, the stock has spent the last several weeks unable to break above $30.