Dividend stocks with a high yield can be really enticing for Canadian investors. And yet, there’s always that red light flashing in the background. A light suggesting perhaps there are fears as to why this yield is so high. Yet in the case of Parex Resources (TSX:PXT), that light looks far greener.
The energy stock has a high yield, true. But it also has many reasons as to why it could be a valuable dividend stock on the TSX today. So, let’s get into why.
About PXT
Parex is a Canadian oil and gas producer headquartered in Calgary, yet all its operations are in Colombia. The dividend stock focuses on light and medium crude oil, operating some of the most efficient, low-cost fields in Latin America.
That low cost comes from a solid business model. PXT acquires and develops high-quality onshore assets in Colombia, maintains low operating costs and low debt, and then uses free cash flow to fund further exploration, dividends, and buybacks.
I know I’ve used the word “low” a lot, but that’s what the dividend stock focuses on. Its operating costs are among the lowest in the industry at around US$13 per barrel. That’s huge given the West Texas Intermediate (WTI) oil prices average US$80 in 2025! This gives it huge free cash flow, even if prices fall.
Supporting that dividend
Let’s go further into why this dividend stock is able to support that high yield so well. As mentioned, it has zero net debt and a cash surplus. In fact, it held over US$250 million in cash and no long-term debt recently, generating hundreds of millions in free cash flow each year.
Now, the dividend stock pays a $0.375 quarterly dividend, hitting $1.50 annually. This gives it a yield of 8.47% at writing! Plus, that yield is well covered by an 84% payout ratio. That means even with shares down, the company can still have plenty of room for payout of dividends without worrying about making a cut.
In fact, recent earnings were quite positive. The dividend stock averaged 55,000 barrels of oil equivalent per day (boe/d), which was flat year over year. It was, however, one of the highest among mid-cap producers for its operating netback, hitting US$44 per barrel. Net income was solid at US$157 million, with free cash flow at US$97 million.
Considerations
So, is it all good news? Of course not; nothing ever is. The key risks here are that the company hasn’t necessarily increased its production, and this can be risky given its exposure to oil. A sustained drop, for instance, could bring the company’s income down drastically, given production is guided between 54,000 and 57,000 boe/d.
Furthermore, the dividend stock operates in Colombia, which introduces a currency and geopolitical risk. The country has been investment-friendly for years, but any hiccups could bring shares down as well. Even so, analysts do highlight the pristine balance sheet and high capital return strategy.
In fact, the dividend stock looks downright valuable at writing, trading at 10 times earnings in the last year. What’s more, it offers 0.67 times book value, showing that there is still room to grow. So altogether, you’re getting a deal on a pristine dividend stock.
Bottom line
There really isn’t such a thing as an “income guarantee,” but PXT certainly comes close to it. The dividend stock offers disciplined, debt-free management, with solid earnings and a high dividend yield. It keeps costs down to increase income while covering its dividend well. So, while no company is immune to downturns, PXT certainly looks like a solid option for investors looking for income on the TSX today.
