Just Released: The 3 Best Dividend Stocks to Buy in November 2022 [PREMIUM PICKS]

Premium content from Motley Fool Dividend Investor Dividend Investor “Best Buys Now” Pick #1: Topaz Energy (TSX:TPZ) All financials presented in …

| More on:
man is enthralled with a movie in a theater

Source: Getty Images

Premium content from Motley Fool Dividend Investor

Dividend Investor “Best Buys Now” Pick #1:

Topaz Energy (TSX:TPZ)

All financials presented in U.S. dollars except share price.

I’m not sure how I’ve managed to overlook Topaz Energy (TSX:TPZ) as a top timely stock worthy of your investment money. It’s probably because I often look for dividend stocks that have slipped meaningfully below what I consider to be “fair value,” and I forget that companies demonstrating continued quiet excellence deserve attention, too.

That’s Topaz. All this royalty and infrastructure play has done since its October 2020 market debut is generate cash, deploy capital into additional acreage that allows for greater future royalties, and steadily return cash to shareholders via a dividend that Topaz has raised five times (not a typo) since its IPO.

Since that IPO, Topaz has more than tripled revenue and cash flow. At the same time, the steady dividend progression is only now up 50% from its debut. The payout ratio (percentage of cash flow paid as dividends) has fallen from 82% to under 47% today.

And I view this as a positive thing, Fools. As a royalty collector, Topaz is a direct beneficiary of high commodity prices, which have been (ahem) “elevated” for some time now.

To illustrate, consider Topaz’s “blended realized price” (a single-figure measure of price for its disparate commodity royalties on natural gas, both light/medium and heavy crude oils, as well as natural gas liquids):

One way of looking at this blended commodity price is that’s it’s gone from $15.86 per barrel of oil equivalent (boe) in 2020 to $43.17/boe in the most recent quarter — a near triple in a few years; it sounds great (from an investing perspective), right?

But another way of looking at this price is that it fell 31% quarter over quarter. Framed that way, it’s kind of a disaster, no?

My take is that you want a company to build in some “margin of safety” to account for the vagaries of commodity pricing so it can protect its dividend payout during times when prices fall. And that’s what not raising the dividend commensurate with other financial measures (revenues, earnings, and cash flows) gives you. As commodity prices have spiked into Q2-22 and subsequently eased off in Q3-22 (or, in the case of just natural gas, plunged), Topaz’s conservative payout ratio means that not only is the dividend protected, but the company could see it raised! Building wiggle room in the payout ratio seems only prudent.

Given Topaz’s steady and strong performance, I’ll be keeping a much closer eye on this one from now on.

Jim Gillies owns shares of Topaz Energy. The Motley Fool recommends Topaz Energy.

“Best Buys Now” Pick #2:

Redacted

logo

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

thinking
Dividend Stocks

Should You Buy BCE Stock for its 8.6% Dividend Yield?

Down over 20% from all-time highs, BCE stock offers you a tasty dividend yield in 2024. But is the TSX…

Read more »

grow dividends
Tech Stocks

Why Nuvei Stock Jumped 26% on Monday

Nuvei (TSX:NVEI) stock saw shares surge today as the company confirmed it's in talks to go private through a buyout.

Read more »

consider the options
Investing

Better Buy for the Dividend: Enbridge or Nutrien?

Enbridge (TSX:ENB) and Nutrien (TSX:ENB) are great dividend plays for new investors going into April.

Read more »

Gold bars
Stocks for Beginners

TSX Materials in March 2024: The Best Stock to Buy Right Now

Materials have been quite volatile, though the price of gold has surged to all-time highs. That makes this stock a…

Read more »

grow dividends
Dividend Stocks

How Long Would It Take to Turn $20,000 Into $100,000 With TSX Dividend Stocks?

Here's how high-quality TSX dividend stocks and the power of compound interest can help grow your investments by 400% or…

Read more »

Happy diverse people together in the park
Tech Stocks

A Once-in-a-Generation Investment Opportunity: Artificial Intelligence (AI) Growth Stocks

Canadian tech companies like Kinaxis (TSX:KXS) are doing big things in AI.

Read more »

Paper airplanes flying on blue sky with form of growing graph
Dividend Stocks

2 Soaring Stocks I’d Buy Now With No Hesitation

These two stocks may be the most expensive on the market, but they're high for a reason! And I'm still…

Read more »

Arrowings ascending on a chalkboard
Investing

This Canadian Blue Chip Is Trouncing TSX Returns, and It Still Has Room to Run

Alimentation Couche-Tard (TSX:ATD) stock looks quite frothy heading into earnings, but there may still be upside.

Read more »