Dividend stocks such as Tourmaline oil (TSX:TOU) pays a monthly dividend – a dividend that is backed by strong business fundamentals and a strong outlook. The last thing we want is to buy a dividend stock only to see the dividend get cut. And with Tourmaline it looks like we won’t have that problem. You see, the company is looking at a strong outlook, which we can expect to keep this dividend safe.
Who is Tourmaline?
As a senior oil and natural gas company, Tourmaline is focused on long-term growth driven by exploration, production and acquisitions. The company’s operations are focused on three lucrative operations in the Western Canadian Sedimentary Basin: the Alberta Deep Basin, the North East British Columbia Montney and the Peace River Triassic Oil resource.
Tourmaline is one of Canada’s largest and cheapest natural gas producers, and this has produced exceptional results. A few years ago, Tourmaline committed to returning 100% of its excess free cash flows to shareholders. The company has been true to its word.
Last year, Tourmaline paid out $3.40 in dividends. This included both a regular dividend and special dividends. The stock traded at an average price of around $65 during this period. This therefore translates into a dividend yield of a very attractive 5.2% for the year.
Third quarter results
The positive investment scenario for Tourmaline is based on two very important factors. The first is the company’s low-cost and high-risk activities. It has enabled Tourmaline to generate profits and cash flows even in markets with low commodity prices.
The second is the positive fundamentals and outlook for the natural gas industry. LNG Canada is rapidly ramping up and will generate an additional two billion cubic feet (bcf) of demand per day. Increased demand from energy centers also supports the outlook for natural gas demand. And finally, demand from data centers is expected to increase significantly in the coming years.
Tourmaline reported lower cash flow in the latest quarter, down 3% to $719.6 million. This was due to weak natural gas prices in Canada. In the third quarter, prices were even at their lowest level in more than thirty years. Yet Tourmalijn was still able to generate significant cash flows.
This is the commodity part of the business – the part that no company has control over. On the plus side, Tourmaline continues to do well with the parts it does have control over. Operating costs fell 1% to $4.80 per barrel of equivalent oil (boe). And transportation costs fell 5% to $4.99 per barrel. In addition, Tourmaline’s development project in Northwest BC is expected to deliver significant growth as well as margin expansion and cost savings over the next six years.
New LNG contracts and realized prices
Tourmaline is also gaining control over its operations by diversifying its markets. Today, Tourmaline has exposure to LNG markets and US markets in addition to traditional Canadian markets. This exposes the company to higher prices.
During the third quarter, Tourmaline concluded one long-term LNG contract and two short-term LNG contracts. The company will average 213,000 million British thermal units per day (mmbtu/d) exposed to international prices. This will grow to 253,000 mmbtu/d in 2027 and 333,000 mmbtu/d in 2028. These are much higher value natural gas markets, with prices even exceeding $20.
The bottom line
Tourmaline has provided its shareholders with significant dividend income in recent years. Looking ahead, we can expect this to continue as the natural gas industry and tourmaline benefit from significant new demand. This is expected to drive natural gas prices and Tourmaline’s fortunes much higher.
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