Brian Schmidt spent 17 years turning a small Alberta driller into one of Canada’s top 10 oil producers. Now he is handing over the keys, but before that, shareholders will be rewarded with a bigger dividend cheque.
Tamarack Valley Energy (TSX: TVE) began paying investors a dividend in 2022. Now, it plans to raise the payout for the second time this year.
Notably, the hike is tied to a $10 billion merger. So, let’s dive deeper.
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Why Tamarack Valley is raising its dividend by 20%
On its October 28 earnings call, Tamarack said it intends to raise its quarterly dividend from $0.05 to $0.06 per share. That works out to $0.24 per share a year, up from $0.20.
The raise takes effect once the Headwater Exploration deal closes. Shareholders vote on November 18, and the company expects to close soon after.
The potential dividend hike would be the second one in 2026. After selling its Charlie Lake assets in June, the board lifted the dividend by 25%. So, over the last 12 months, the payout could rise by 50%.
Tamarack’s board approved a move from monthly to quarterly payments starting in 2026. While the cheques arrive less often, they are poised to get much bigger.
How the Headwater deal and Clearwater focus changed the story
Tamarack announced the all-stock deal on September 8, which will create the only publicly traded pure-play producer in Canada’s Clearwater region.
Legacy Tamarack shareholders will own 66.5% of the combined company, and Headwater investors get 33.5%. Notably, production would top 80,000 barrels per day.
Management expects at least $50 million a year in savings, which includes $15 million from better pricing, $15 million from smarter drilling, and $20 million from lower overhead costs.
President Steve Buytels will become the CEO in January 2027, and Schmidt moves to executive chair.
Is the new Tamarack Valley dividend sustainable?
In the third quarter, Tamarack generated $214 million in funds flow and $92 million in free funds flow, CFO Kevin Johnston told investors.
Free funds flow is what is left after the company pays to keep drilling. In the first nine months of 2026, it reported free cash flow of $375 million or $0.78 per share. Comparatively, the annual dividend is $0.24 per share. So, the payout ratio is around 33%.
The TSX dividend stock began the fourth quarter with $540 million in cash and $875 million of undrawn credit. After the deal, management expects net cash of more than $50 million.
Management also says its unhedged breakeven oil price would fall to US$37 a barrel, including the dividend. And maintenance spending should stay under 20% of cash flow in 2027.
Waterflooding is the technique that makes the dividend math work. Tamarack injects water into its oil reservoirs to push more crude toward the well. Each barrel recovered this way costs less than drilling a new one.
This strategy is working, and Buytels said the extra oil from water injection is now about 10,000 barrels per day, or 18% of total production.
Schmidt explained:
I haven’t seen an asset like this where you can grow production and reduce sustaining capital at the same time.
Risks Tamarack Valley dividend investors should weigh
Tamarack’s higher payout looks well covered today, but it is not guaranteed. Here are the risks to weigh.
The company’s cash flow is tied to oil prices. Management credited “elevated commodity prices” in 2026 for much of its cash flow. So, if oil prices normalize in 2027, the free cash flow could decline significantly.
Next, the deal still needs shareholder and regulatory approval, and the next dividend hike depends on the same.
Tamarack also says its dividend policy is reviewed regularly and can change at any time. Buybacks compete for the same cash too, and Tamarack has spent $190 million this year to buy back nearly 16 million shares.
Finally, Buytels admitted that pricing from the new TMX pipeline capacity is hard to pin down, given volatile freight costs.
