Despite all the carnage in the energy sector over the last few years, there are still a select few energy companies that have managed to maintain their dividends.
Most of these companies are major players, who diversified away from just producing oil years ago. They own refineries, service stations, and other lines of business that aren’t directly linked to crude prices. In fact, as prices go down, people drive more.
But there are a select few pure producers that have paid investors despite the price of crude declining more than 50% from June, 2014’s peak. One of those companies is Vermilion Energy Inc. (TSX:VET)(NYSE:VET), which has developed low-cost production in Canada, France, Holland, Australia, and others.
Despite most other producers cutting back production in the last couple of years, Vermilion has pushed ahead. It produced approximately 40,000 barrels of oil per day in 2014. 2016’s production was just over 60,000 barrels per day and management expects to hit 75,000 barrels per day in 2018.
Vermilion’s focus on low-cost oil has really paid off. It has some of the highest netbacks in the entire sector. In its most recent quarter, it posted an operating netback of $27.88 per share. Its after-tax cash netback in the most recent quarter was higher than all 22 companies in its peer group.
This means the company can actually afford its 4.7% dividend. Management projects approximately $350 million in free cash flow will be generated in 2017. It’ll pay out approximately $100 million in cash dividends. That leaves it plenty of excess cash available to pay down debt or buy back shares.
