Dividend Investors: 2 Energy Stocks Are Returning More Cash

Investors can feast on the rising dividends of two energy stocks whose growing free cash flows could lead to more dividend hikes in 2022.

| More on:
A close up image of Canadian $20 Dollar bills

Image source: Getty Images

Canadian energy companies are flush with cash, and multiple dividend hikes this year are possible if the surge of oil prices doesn’t stop. Tourmaline Energy (TSX:TOU) could be the pacesetter, as its increase came earlier than expected. Vermilion Energy (TSX:VET)(NYSE:VET) has reinstated its dividend and is about to make the first payout after two years of non-payment.

The energy sector has made an incredible turnaround in 2021 after a forgettable oil slump in 2020. Thus far, in 2022, the demand for oil is outpacing supply. The Russia-Ukraine war could send crude prices higher because of supply disruptions. Meanwhile, free cash flows are booming among industry players. Also, several companies are likely to accelerate their share buybacks.


On March 7, 2022, Tourmaline Oil announced an 11% hike to its base dividend. While the dividend yield is a modest 1.61%, RBC Capital Markets analysts predict a couple of hikes is coming this year. The $15.89 billion oil and natural gas producer also declared a special dividend ($1.25 per share) recently, the second time since October 2021.

Anthony Petrucci of Canaccord Genuity has a buy rating for this energy stock. He expects quality producers to follow Tourmaline’s lead. Petrucci added that many energy stocks will have free cash flow yields of over 20% or amounts equivalent to one-fifth of their total market value.

As of this writing, current investors enjoy a 32.03% year-to-date gain. At $52.43 per share, the trailing one-year price return is 146.78%. The 12-month average price target of other market analysts is $66.46 (+26.8%).  

In Q4 and full-year 2021, total revenue increased 488% and 492%, respectively, versus the same periods in 2020. The highlights, however, were the 58% and 228% year-over-year increases in net earnings. Tourmaline’s free cash flow for the year was a record $1.49 billion.

Reinstatement of dividends

Investors should welcome the decision of the board of directors of Vermilion Energy to reinstate the dividend. The approval was justified, considering the 304% increase in free cash flow ($545 million) in 2021 versus 2020. Also, cash flows from operations grew 66.8% year over year to $834.45 million.

In 2021, the top line increased 85.8% compared with the previous year, while net earnings reached $1.14 billion. Vermilion Energy incurred a net loss of $1.51 billion in 2020. Furthermore, the average annual production of 85,408 barrels of oil equivalent per day (boe/d) for the year was at the top end of management’s revised guidance.

The $4.58 billion petroleum and natural gas producer considers 2021 a transformational year. Its balance sheet was overleveraged at the start of the year in that net debt reduction became the topmost financial priority. Management had a modest capital budget to preserve liquidity, maximize free cash flow, and reduce debt. The strategy was successful and aided by the favourable pricing environment.

As of March 7, 2022, the energy stock is riding high with its 77.67% year-to-date gain. At $28.25 per share, the dividend offer is 0.21% for now. Besides its target to hit $1.2 billion in net debt by the back half of 2022, dividend hikes, special dividends, and share buybacks are under evaluation.

Positive and negative impacts

Energy companies are enjoying rising cash flows in Q1 2022. Unfortunately, the continuous rise of commodity prices will hurt consumers and households.   

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends VERMILION ENERGY INC.

More on Dividend Stocks

Pile of Canadian dollar bills in various denominations
Dividend Stocks

Ready to Invest With $5,000? 3 Stocks for July 2024

Are you ready to invest in stocks that can provide growth and income for decades? Here are three options for…

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Dividend Stocks

Here’s the Average TFSA Balance at Age 41 in Canada

The average TFSA balance at age 41 is lower than the cumulative contribution room, but it’s never too late to…

Read more »

money cash dividends
Dividend Stocks

2 Top TSX Dividend Stocks to Own for Passive Income

These great Canadian dividend stocks now offer high yields.

Read more »

Dividend Stocks

2 Dividend Stocks That Could Create $1,000 in Passive Income in 2024

Are you building your passive-income portfolio? Invest $10,000 and get a $1,000 annual payout in 12 monthly installments starting August…

Read more »

Payday ringed on a calendar
Dividend Stocks

How to Use a TFSA to Earn $250 Per Month in Tax-Free Passive Income

TFSA investors can consider holding dividend stocks such as Mullen Group in the registered account for passive income.

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

TFSA Passive Income: 2 Stocks to Buy and Never Sell

A TFSA portfolio built with solid dividend stocks that promise decades of stable payouts can be an indispensable passive-income source.

Read more »

Family relationship with bond and care
Dividend Stocks

Invest in These TSX Stocks Now and Retire With Peace of Mind

Canadian stocks like Brookfield Asset Management (TSX:BAM) offer long term investment potential.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Passive Income: 4 Stocks to Buy and Never Sell

These four TSX dividend stocks could boost your passive income.

Read more »