Dividend Companies With Growth Prospects for the Immortals in Bugarach

Nathan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

As the world is going to end this Friday, it is no use buying stocks. We should close our laptops and dump our stock lists tonight. The indexes of the US stock exchange could drop and Friday could end up being a Black Friday. However the inhabitants of Bugarach, that French village which is going to stay untouched from the apocalyptic mayhem, they could be interested in buying the following companies which balance between growth and yield for a volatility-resistant portfolio with growth potential. Does it sound to you like a "2 in 1" investment? If so, then you are absolutely right! 

For the Bugarachians Only
 
When I pick dividend stocks, my philosophy is that balance sheet strength is paramount and will ensure the long term sustainability of the dividend. Conservative payout ratios play a major role for this goal. This being said, PetroBakken (TSX: PBN) is a Canadian light oil producer who has been growing its production consistently during the last 9 months and it hit 51,000 boepd recently. The company is on pace to achieve its 2012 exit rate production guidance of 52,000 to 56,000 boepd.

The monthly dividend is $0.08 and the current yield is 9.41% on an annualized basis based on today's price of $10.20. The company is well positioned to live and thrive within its operating cash flow as the dividend requires $180 million annually while the annual Funds from Operations (FFO) are almost $600 million. Thus the payout ratio is 37% and it goes down to 14% post-DRIP as the participation in the company's dividend reinvestment plan is at 62%. 

Although the D/CF ratio is slightly higher than 2, the debt is manageable as the production grows consistently along with the FFO. Additionally PetroBakken holds more than 1 million net acres to sell if necessary.
 
Enrique Penalosa, the former Mayor of Bogota in Colombia said: "A developed country is not a place where the poor have cars. It is where the rich use public transportation." Colombia is also where Petrominerales (TSX: PMG) primarily operates holding 2 million net acres along with 6.4 million net acres in Peru. Its production is around 26,000 bopd currently. The dry holes is part of the game for any explorer and this is why Petrominerales' production has stalled lately. 

However there is a big safety margin for the sustainability of the dividend as the current 6% dividend requires only $45 million annually which is almost 7% of the $700 million estimated annual FFO. This big safety margin also made Petrominerales initiate a share buyback program in May 2012. Additionally, the company's recent oil discoveries in Colombia and Peru seem to make the dry holes an unfortunate past memory. As there is still plenty of available FFO to fund the annual capital expenditures, the growth engine can ignite again soon.
  
The Sweet Home Alabama Player
 
Energen Corporation (NYSE: EGN) is a hybrid Alabama-based company that has an oil and gas exploration and production company of 67,000 boepd (50%) complemented by a natural gas utilityIt holds significant land in the liquids-rich Permian and San Juan Basins of Texas and New Mexico respectively. 

The company has a 30 years long dividend growth history and eventually an investor does not have many reasons to doubt the dividend sustainability. As the dividend requires only $40 million annually from the 2012 FFO of $800 million, the investor has additional reasons to believe that the growth prospects are bright too. Actually this is real as Q3 2012 oil production grew 33% yoy and the total oil and natural gas liquids production in 2013 is estimated to increase a solid 23% and comprise more than 50% of total production. No worries from the debt front either as the D/CF ratio (annualized) is just 1.4x. 

Give Me More
 
Well, the Bugarachians could add Twin Butte Energy (TSX: TBE) that hovers at $2.62 one day before the end of the world. This intermediate heavy oil producer is the most acquisitive Canadian energy company in 2012 after the giant Crescent Point Energy. Twin Butte has acquired 4 peers in the last 10 months while Crescent Point has acquired 6 other oil players during the same period. Is Twin Butte a "Crescent Point in the making"? Yes, It could be as Crescent Point had Twin Butte's size about ten years ago.
 
The Company's drilling inventory which currently is estimated to be over 700 net conventional vertical and horizontal heavy oil wells should provide predictable and repeatable drilling results for a number of years. It pays a monthly dividend of $0.016 per share that gives a 7% annual yield deducting only $41 million out of the $170 million estimated annual FFO. The low payout ratio (approximately 25%) and the low D/CF ratio ensure the sustainability of the dividend in the long run along with the corporate growth. The company's plan is to provide a moderate production growth yoy of 3-5%. What not to like here?
  
I also believe that Renegade Petroleum (TSXV: RPL) should join this dividend and growth party as it hovers at $2.24 currently. After a recent acquisition, this light oil producer doubled its production at 7,800 boepd (95% oil and liquids) bringing the annualized D/CF ratio at 2 which is quite manageable. 

Renegade will initiate a monthly dividend of $0.0192/share very soon that gives a 10% annual yield based on today's price. The dividend, on an annualized basis, will require around $47 million which is 35% of Pro Forma Renegade’s estimated 2013 cash flow of approximately $130 million assuming 2013 average realized pricing of $80 per flowing barrel. This low payout ratio leaves Renegade enough room to progress its business plan in a disciplined approach for a moderate per share growth along with a debt reduction on the long term.
 
To Live Or Not To Live
 
Despite all this, If I had to choose, I would not want to be a Bugarachian! If the world is going to end, I want to go with it. I do not really care for the dividend yielding companies and I do not want to be one of the few immortals. See you there, fellow mortals!
 
 
 


Fool blogger Nathan Kirykos does not own shares in any of the companies mentioned in this entry. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure