1 Dividend Stock Down 31% to Buy Right Now

Tourmaline Oil is a blue-chip dividend-paying TSX stock offering shareholders a tasty yield.

| More on:
woman analyze data

Image source: Getty Images

While equity markets have staged a remarkable recovery in the last 12 months, the rally was primarily driven by tech stocks. Several stocks across other sectors continue to trade below all-time highs due to macro headwinds such as geopolitical tensions, inflation, interest rate hikes, and slower consumer spending.

For instance, after reporting record profits in 2022, energy companies are trailing the broader markets due to lower oil prices and higher costs of debt. One such TSX energy stock down over 30% from all-time highs is Tourmaline Oil (TSX:TOU).

Valued at a market cap of almost $20 billion, Tourmaline Oil is among the largest energy companies in Canada. The recent pullback has increased its dividend yield to roughly 2%. Let’s see why I’m bullish on the TSX dividend stock right now.

An overview of Tourmaline Oil

Tourmaline Oil is a senior crude oil and natural gas exploration and production company. It is focused on long-term growth through an aggressive exploration, development, production, and acquisition program in the Western Canadian Sedimentary Basin.  

It began operations in 2008 and has gained traction on the back of strategic acquisitions, farm-ins, and land acquisitions combined with a robust capital development program.

Tourmaline Oil has assembled an extensive undeveloped land position with a large, multi-year drilling inventory and control of essential natural gas processing and transportation infrastructure.

How did Tourmaline Oil perform in Q3 of 2023?

In the third quarter (Q3) of 2023, Tourmaline Oil reported an operating cash flow of $878.5 million and a free cash flow of $332.3 million, or $0.96 per share. It expects to end 2023 with a free cash flow of $1.9 billion, down from $3.2 billion in 2022 due to lower commodity prices.

The company ended Q3 with a net debt of $880 million, which is not too high, given the company’s free cash flow forecast for the year. Further, its earnings in the September quarter stood at $275 million or $0.80 per share.

Last October, Tourmaline Oil entered an agreement to acquire Bonavista Energy for $1.45 billion, which includes 50% in stock and the rest in cash. Tourmaline Oil also allocated $565.4 million towards capital expenditures in Q3, which should drive future cash flows and earnings higher.

While Tourmaline Oil pays shareholders an annual dividend of $1.12 per share, it also allocates a portion of its free cash flow towards a special dividend. In the last four quarters, it has distributed $6.52 per share in total dividends, indicating a trailing yield of 9%, which is quite tasty.

In 2022, as oil prices touched record highs, the company paid close to $8 per share in total dividends. Additionally, Tourmaline has more than tripled its dividends in the last six years.

The Foolish takeaway

Tourmaline’s low-cost operations allow it to generate consistent profits even when oil prices are under pressure. In the last 10 years, the TSX stock has gained just 24% in market value. But after adjusting for dividends, total returns are closer to 90%.

Priced at 9.2 times forward earnings, Tourmaline Oil stock trades at a cheap valuation given its high yield.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Tourmaline Oil. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Young woman sat at laptop by a window
Dividend Stocks

5% Dividend Yield: Why I Will Be Buying and Holding This TSX Stock for Decades!

Stability and a healthy return potential are among the hallmarks of the so-called “forever stocks.” But while many stocks promise…

Read more »

grow money, wealth build
Dividend Stocks

Here’s the Average RESP Balance and How to Boost it Big Time

The RESP can be an excellent tool for saving for a child's future. But is the average enough? And where…

Read more »

Two colleagues working on new global financial strategy plan using tablet and laptop.
Dividend Stocks

Best Stock to Buy Right Now: Manulife vs. CIBC?

These stock have enjoyed massive rallies in the past year. Are more gains on the way?

Read more »

investment research
Dividend Stocks

How to Use Your TFSA to Earn $12,000 Per Year in Tax-Free Income

The TFSA can act like a part-time job when invested properly, using your funds to turn your investments into the…

Read more »

edit Sale sign, value, discount
Dividend Stocks

1 Magnificent TSX Dividend Stock Down 60% to Buy and Hold Forever

Northwest Healthcare Properties is an overlooked TSX stock that's yielding more than 6% with solid fundamentals.

Read more »

Increasing yield
Dividend Stocks

High-Yield Alert! 3 Dividend Stocks to Buy Now for Perfect Passive Income

High yield dividends aren't always filled with risk. And these high yielders could certainly be well worth it.

Read more »

Utility, wind power
Dividend Stocks

Is Brookfield Asset Management Stock a Buy for its 3.2% Dividend Yield?

While the stock appears to be fully valued, Brookfield Asset Management is a solid dividend stock for long-term wealth creation.

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

2 TFSA Stocks to Buy Immediately With Your $7,000 Room

These two stocks provide stability and reliable dividends to grow your Tax-Free Savings Account (TFSA).

Read more »