Consider Vermilion Energy for Your Portfolio

A solid name if you’re looking for more energy exposure in your portfolio.

| More on:
The Motley Fool

Vermilion Energy (TSX:VET) has been around for 20 years and public for 18 of them.  Though it’s based in Canada, Vermilion has carved out a niche amongst its mid-tier peers by focusing on international growth.

Canada’s emerging global player
Vermilion isn’t the biggest oil and gas company and it isn’t the cheapest either, but its diverse production base, seasoned management team, and dividend growth potential offers a potent mix for owners of this stock.

Production growth looks bright for the next few years as new projects come online. Over the past 10 years, production at Vermilion has grown by an average of 6%. That growth has been geographically diverse as the company has acquired properties in Canada, France, Australia, and the Netherlands. In 2012 production grew by 7% to 37,803 barrels of oil per day and the company is looking at another 3%-7% addition for 2013. By early 2015 the company’s investment in a natural gas project off the coast of Ireland should start adding to production growth, too.

Growing production isn’t helpful if reserves aren’t growing to support the long-term expansion of the business. In the past decade, property acquisitions and additional exploration within those properties have allowed proved and probable reserves to grow at an 8% clip. With 80% of its production — including its Netherlands gas — tied to Brent Oil prices, Vermilion has been able to grow cash flows substantially while securing production growth for the future.

Conservatively financed, employee friendly, and Foolish
The growth potential at Vermilion looks good, but more impressive is how the board and management have balanced the needs of shareholders, employees, and the citizens in its operating areas to keep all parties happy. Directors and other insiders own 7% of the shares, with CEO Lorenzo Donadeo holding a 3.6% position.  As a group they have a clear interest in growing the business and keeping everybody motivated.

Shareholders have plenty to be happy about too. Vermilion has delivered solid cash flow growth, which has led to a steady appreciation in the shares. And, it has achieved this growth while returning a substantial amount of cash to shareholders.

Currently Vermilion shares yield 4.7%. Companies like Canadian Oil Sands (TSX:COS) and Crescent Point Energy (TSX:CPG) carry a yield of 7.1% each, therefore, Vermillion isn’t the highest yielder in the group.  However, with companies like Canadian Natural Resources (TSX:CNQ) and Suncor (TSX:SU) sporting a yield of just 1.7% and 2.6% respectively, it’s not the lowest either.  With more production coming online and a conservative use of debt, dividend hikes could be part of this company’s future.

Foolish final thoughts
Over the long-term, provided the commodity co-operates, Vermillion shareholders are likely to be handsomely rewarded with a combination of capital gains and dividend income.  A total return package from Canada’s energy patch.

Already have enough exposure to energy stocks?  Click here and we’ll send you our special FREE report that profiles 5 Canadian companies that have earned their long-term owners billions of dollars.  Not only could these 5 do the same for you, but they’ll help diversify your portfolio at the same time.  Click here if you like less risk and more reward!

Follow us on Twitter and Facebook for the latest in Foolish investing.

The Motley Fool has no positions in the stocks mentioned above.

A version of this article, authored by Nathan Parmelee, originally appeared on Fool.com

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

A plant grows from coins.
Investing

How I’d Invest $7,000 in My TFSA for Inflation-Beating Returns

The TFSA can make you and save you money! Pick the right stocks, and you can create life-changing wealth by…

Read more »

woman analyze data
Dividend Stocks

Where’d I’d Invest $9,800 in the TSX Today

For investors looking at places to put their next chunk of cash to work in the Canadian market, here are…

Read more »

Dividend Stocks

This 4.6% Dividend Stock Pays You Cash Every Month!

This dividend stock just received a major upgrade by analysts, making it a great time to buy in bulk!

Read more »

Hourglass and stock price chart
Dividend Stocks

1 Magnificent Financial Services Stock Down 13% to Buy and Hold Forever

This financial services stock is one top stock to buy if you're wanting high income and growth.

Read more »

stocks climbing green bull market
Investing

The TSX at All-Time Highs: How I Saw This Outperformance Coming

Suncor Energy (TSX:SU) stock is still cheap despite the TSX's all-time high.

Read more »

Stethoscope with dollar shaped cord
Dividend Stocks

The Smartest Blue-Chip Stock to Buy With $3,500 Right Now

There are top stocks and then blue-chip stocks, and this dividend stock is one strong option.

Read more »

online shopping
Tech Stocks

Shopify vs Constellation Software: Where I’d Allocate $8,000 for Tech Exposure

Understand the market dynamics affecting Shopify and its seasonal stock behaviour as we approach the holiday season.

Read more »

A bull and bear face off.
Top TSX Stocks

Where I’d Invest $11,000 in the TSX Today

Looking for some stellar long-term picks? Any of these could be labeled as top picks on the TSX today. Here's…

Read more »