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

Airport and plane
Investing

Air Canada – Its Moment Has Come

Air Canada stock got beaten down last year, but today, its prospects are better.

Read more »

Man data analyze
Investing

Here’s the Next TSX Stock I’m Going to Buy

BRP Inc. (TSX:DOO) is a TSX stock I’m looking to snatch up, as the Powersports industry rebounds after the COVID-19…

Read more »

Dividend Stocks

TFSA: How to Invest $88,000 to Get $5,450/Year in Passive Income

Top TSX dividend stocks such as Enbridge can be held in your TFSA to benefit from steady payouts and capital…

Read more »

Arrow descending on a graph
Investing

3 Stocks to Add to Your Portfolio in a Market Pullback

The stock market is in the green, but the upcoming U.S. Fed meeting raises fears of a pullback. Use that…

Read more »

Tech Stocks

Your Future Self Will Thank You for Buying Lightspeed Stock in 2023

Here’s why you may want to add LSPD stock to your portfolio in 2023 to hold it for the long…

Read more »

grow money, wealth build
Bank Stocks

TFSA Investors: A Big Bank Stock That Pays Almost 6% in Dividend Income

A Big Bank stock is an ideal core holding in a TFSA, not only for its financial stability but also…

Read more »

a person watches a downward arrow crash through the floor
Tech Stocks

Don’t Wait for a Market Crash: These 2 Top Stocks Are on Sale

Waiting for a market crash can take away the opportunity to buy early in the market rally while growth stocks…

Read more »

edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.
Tech Stocks

Have $500? 2 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now

Got $500 to invest? Consider buying these stocks that are too cheap to ignore.

Read more »