Beat Lower Oil With This Super +12% Yielding Dividend Stock

Even in choppy conditions, Vermilion Energy Inc. (TSX:VET)(NYSE:VET) pays a high yield amid long-term lower oil.

| More on:
Double exposure of a businessman and stairs - Business Success Concept

Image source: Getty Images

The prospect of long-term lower oil came into clearer focus last week as investors watched the sector rebound quickly from the situation in the Middle East. Technology is also helping rigs to become more productive, further increasing efficiency, increasing output, and making it easier to control oil prices. With oil running out of momentum, only certain types of hydrocarbon stocks look worth the investment.

Go long on high-yield, compounding income

One way to play stocks in this space for the long term is for their dividends. For investors with broad financial horizons, compounding passive income from oil stocks could reward where capital appreciation may falter in the shorter term. In other words, investors seeking oil companies to pad out a TFSA or RRSP should be looking for reliable income stocks with payments that are unaffected by lower oil prices.

Take high yielding companies such as Vermilion Energy (TSX:VET)(NYSE:VET). The company has been able to reward investors with a rich yield during periods of lower oil prices and looks set to continue doing so. Beyond pipeline stocks it’s hard to find a hydrocarbon stock that has covered its payments reliably in a financial environment unconducive to the oil patch. Vermilion ticks that box, though.

Paying a dividend yield just shy of 13%, Vermilion stands out in more ways than one. Besides being a richly rewarding stock that can cover payments even during lower oil, the company is diversified across North America, Europe, and Australia. Canadian energy assets have long been held to be among the most defensive of investment choices in the North American markets, and Vermilion fits a low risk, lower oil play.

Vermilion is a satisfying well-to-customer business, with a full-cycle approach to keeping down costs and maintaining competitive production levels. The company buys, explores, develops, and manages production sites, with most of its income generated by production and sales.

Stay diversified with a renewables counter-investment

A side bet on growth in a competing sector could help to strengthen and diversify income in a basket of stocks built around passive income and steadily growing wealth generation. For example, renewables are becoming more cost efficient and look set to take over from hydrocarbon generated electricity, while electric vehicles are also a growth market.

Pairing Vermilion with a renewables stock helps to keep an energy income portfolio diversified and adds exposure to the global green energy megatrend. With the U.S. taking the top spot last year as the world’s largest oil producer, Canadian oil was left somewhat in the shade. However, 2020 could be a better year for Canadian crude, with Deloitte Canada forecasting higher per barrel prices in the coming months.

TransAlta Renewables is a forward looking play in the green energy space and pays an attractive 6% yield. The company controls a set of diversified assets in the renewables sector. Its Canadian wind assets draw energy from sites in Alberta, New Brunswick, Ontario, and Quebec, while its Canadian hydro assets cover river-generated hydroelectric generation. It also owns and runs solar and gas facilities.

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.

Fool contributor Victoria Hetherington has no position in any of the stocks mentioned.

More on Dividend Stocks

edit U-turn
Dividend Stocks

Down 11% From its 52-Week High, Can goeasy Stock Turn Things Around?

Investors looking for value should be drooling at goeasy (TSX:GSY) stock. With a higher dividend and more room to run,…

Read more »

calculate and analyze stock
Dividend Stocks

Sun Life Stock Is Paying $3.24 Per Share in Dividends: Time to Buy the Stock?

Sun Life (TSX:SLF) stock recently bumped its dividend upwards by 4%, creating even more value for investors today.

Read more »

A Canada Pension Plan Statement of Contributions with a 100 dollar banknote and dollar coins.
Dividend Stocks

Retirees: Here’s How to Boost Your CPP Pension

If you hold dividend stocks like Fortis Inc (TSX:FTS) in a TFSA, you'll take home more income than if you'd…

Read more »

A worker gives a business presentation.
Dividend Stocks

3 Safe Dividend Stocks to Own for the Next 10 Years

Given their consistent performances, healthy growth prospects and solid cash flows, these three dividend stocks are excellent buys for the…

Read more »

A bull outlined against a field
Dividend Stocks

The Bullish Market Left These 3 Stocks Behind, But They’re Buys Right Now

The bullish market left Air Canada (TSX:AC) stock behind.

Read more »

grow money, wealth build
Dividend Stocks

2 Ultra-High-Yield Stocks to Buy Hand Over Fist and 1 to Avoid

I have identified two ultra-high-yield stocks that have fallen to their lows despite strong fundamentals because of sector weakness.

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

3 Stocks Under $50 New Investors Can Confidently Buy

Investors looking for strong stocks can be a bit overwhelmed with options. Which is why today we're looking at these…

Read more »

Golden crown on a red velvet background
Dividend Stocks

Cash Kings: 3 TSX Stocks That Pay Monthly

These monthly dividend stocks offer steady and predictable income and high yields, making them attractive to investors seeking regular cash…

Read more »