Natural gas prices have rallied 80% since their lows earlier this year. Naturally, this has given rise to strong results from natural gas producers. In this article, I’d like to highlight two producers that are very attractive high-yield dividend stocks today.
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Birchcliff Energy: 7.9% dividend yield
Birchcliff Energy Ltd. (TSX: BIR) is a natural gas producer based in prolific basins in Western Canada. The company’s focus is on the Montney/Doig resource play in Alberta. This asset base is a high quality one, with a multi-decade inventory and good exposure to liquified natural gas (LNG) growth potential.
Today, Birchcliff is yielding a very generous 7.9%. This high-yield dividend stock is backed by a strong balance sheet and strong cash flows. It’s also backed by natural gas and liquids market diversification. For example, the company has entered into a long-term butane export agreement at Altgas’ export terminal in Washington. This gives Birchcliff exposure to premium LNG pricing.
Let’s take a look at Birchcliff’s latest results (Q3/24). Production increased 1.7%, and natural gas accounted for 83% of the company’s production. While earnings and cash flow were lower than last year, this can be attributed to lower natural gas prices.
On the bright side, while the dividend was not covered by earnings, it was well-covered by cash flow. In the last five years, Birchcliff’s dividend grew at an average growth rate of 54%.
Looking ahead, Birchcliff stands to benefit from the expected strength in natural gas prices. This positive outlook is driven by the expected colder weather in the short term. In the longer term, it’s being driven by increasing LNG demand.
Peyto: 8.4% dividend yield
The other natural gas producer that’s a high-yield dividend stock right now is Peyto Exploration and Development Inc. (TSX: PEY). Peyto is currently yielding 8.4%, with strong returns and a strong balance sheet. In fact, Peyto is actually one of the lowest-cost natural gas producers in Canada.
This is because the company has top-quality assets, which can be found in one of Canada’s most prolific basins, the Alberta Deep Basin. It’s a basin that’s characterized by a high return production profile, with high recoveries and predictability. This has enabled Peyto to remain one of the lowest-cost natural gas producers, with a consistent, growing dividend.
In Peyto’s most recent quarter, production per share increased 10%. The dividend has a 43% 5-year average growth rate, and is also backed by a strong balance sheet and natural gas market diversification.
Today, Peyto’s stock is cheap. In fact, it’s trading at a mere 4.7 times cash flow and 1.1 times book value. This is despite the company’s solid operational and financial management, as evidenced in its 11.5% return on equity.
The bottom line
The high-yield dividend stocks discussed in this article are good places to start for exposure to solid returns. With the outlook for natural gas prices being boosted by LNG demand as well as a general increase in demand due to population growth and data centres, these dividend stocks stand to benefit greatly.
