Dividend investing is back in 2024, particularly in the energy sector. Income investors can choose from several cash cows now that the sector is back as one of the top-performing sectors. A top no-brainer buy for me is not an oil or natural gas producer but a services company in the oil & gas drilling industry.
PHX Energy Services (TSX:PHX) flies under the radar yet continues to outperform its energy peers and beat the broader market. At $9.77 per share, the year-to-date gain is 25.99%, while the trailing one-year price return is 50.03%. Prospective investors will delight in the 8.19% dividend.
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Business overview
PHX Energy Services (formerly Phoenix Technology), based in Calgary, started operating in 1995. The $463.96 million company is the largest independent supplier of directional drilling services in North America.
In addition to Canada, its directional drilling subsidiary entities provide horizontal and directional drilling technology and services to oil and natural gas-producing companies in the U.S., Albania, and Russia.
Directional drilling, or steering the well path toward an intended target, requires efficiency and speed. The extensive equipment fleet is a competitive advantage, and its premium technology enables faster and more precise drilling operations.
Its fleet is one of the industry’s largest in size and capabilities. It includes advanced features such as unified telemetry, continuous inclination, closer-to-bit measurements, and an even wall power section.
Banner year
Last year was a banner, evidenced by the solid financial results. In the 12 months ending December 31, 2023, revenue increased 23% year over year to $656.3 million, while earnings jumped 122% to $98.6 million compared to 2022.
The cash flow from operations climbed 152% to $96.7 million versus the previous year, and the total dividend payments of $30.2 million were 99% higher than the year ago. Notably, the Canadian division’s $155.5 million annual revenue was the highest since 2014. The increase for the year-end quarterly dividend was 33%
Latest financial performance
In the first half of 2024, revenue inched 0.40% lower to $320.3 million from a year ago, while earnings fell 25% year over year to $30.4 million. Still, cash flow from operating activities was strong, rising 92% to $50.5 million.
PHX also paid $18.95 million during the period, which represents a 24% from the same period in 2023. Despite the slight decline, the top line is still within the record level in 2023.
Management remains confident about its market leader position and growing market share. PHX also expects its unique technology offering to continue providing resilience against pressures. Its president, Michael Buker, said PHX built a fleet of premium technology with capital expenditures of $65 million and $75 million in 2023 and 2024.
Buker added that PHX has an opportunity to produce additional excess cash flow with the anticipated lower growth capital expenditures and spending in 2025.
Phoenix rising
PHX Energy Services should rise from obscurity anytime soon, given the stock’s upward trajectory. Since December 2020, the energy stock has raised its dividends five times. You’ll get the best return for your money at less than $10 per share.
