Several TSX energy stocks have pulled back in 2025 due to lower oil prices, slowing demand, and a challenging macro environment. Shares of Tourmaline Oil (TSX: TOU) are down 13% from their 52-week highs and 27% from all-time highs, allowing you to buy the dip and benefit from an attractive yield right now. Let’s see why.
Source: Getty Images
Is this TSX dividend stock a good buy?
Valued at a market cap of $24 billion, Tourmaline Oil is engaged in the acquisition, exploration, development, and production of petroleum and natural gas properties in the Western Canadian Sedimentary Basin.
In the last 10 years, the TSX stock has returned 97% to shareholders. However, if we adjust for dividends, cumulative returns are closer to 205%.
Tourmaline Oil delivered strong results in the second quarter (Q2) of 2025 and unveiled ambitious expansion plans that position the energy giant for long-term growth. In the June quarter, the Canadian natural gas producer reported production of 620,757 barrels of oil equivalent (BOE) per day. It reported an operating cash flow of $823 million and a free cash flow of $317 million in Q2, allowing it to pay a special dividend of $0.35 per share.
The centrepiece of Tourmaline’s strategy is a massive Northeast BC Montney development project representing one of Western Canada’s largest E&P initiatives. Over the next six years, the company plans to add 1.1 billion cubic feet (Bcf) per day of gas production and 50,000 barrels/day of condensate and natural gas liquids through an infrastructure buildout, including two new deep-cut gas plants, expansion of four existing facilities, and extensive pipeline networks.
This development targets Tourmaline’s highest-margin inventory, characterized by the lowest capital and operating costs. The project is expected to drive production growth from current levels of approximately 650,000 BOE/day to 850,000 BOE/day by 2031, representing a 30% increase. More importantly, cash flow is expected to increase by over 40%, with free cash flow improving 2.5 times to $2.5-$3 billion annually at flat pricing once the infrastructure is complete and capital spending normalizes to maintenance levels.
Management maintains flexibility to adjust timing based on commodity prices. It has already deferred some Q2 and Q3 activities due to weak pricing.
Tourmaline’s balance sheet remains robust with net debt at just 0.5 times cash flow. The company recently secured its third Gulf Coast LNG agreement with Uniper for 80,000 metric million British thermal unit (MMBtu) per day beginning in November 2028, which provides additional market diversification.
Is the TSX stock undervalued?
While the capital-intensive expansion delays shareholder return enhancement until the late 2020s, the project positions Tourmaline to generate substantial free cash flow for decades from North America’s most extensive future drilling inventory.
Analysts tracking the TSX stock forecast its free cash flow to increase from $992 million in 2024 to $2.5 billion in 2031. If TOU stock is priced at 20 times forward free cash flow, which is reasonable, it could more than double over the next five years.
A widening free cash base should also translate to consistent dividend payouts. So, if we adjust for dividend reinvestments, cumulative returns could surpass 125%.
