For those investors who are retired or even approaching retirement, the search for income is a never-ending search that we hope will yield favourable results. Because the reality is that CPP and government benefits are simply not enough. We need other sources of income, like dividend stocks, to maintain a comfortable standard of living. So, let the search begin.
In this article, I’ll discuss what I think is a top-notch dividend stock that should be considered to fuel one’s retirement income needs. But what makes a dividend stock a top-notch dividend stock? Is it yield? Predictability? Growth?
The answer to the question is, of course, all of the above. Investors count on dividend stocks to provide reliable, sustainable, and growing income in their retirement. Therefore, these qualities are essential qualities that those planning for or in retirement should look for in any dividend stock being considered.
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Peyto Exploration: The right place at the right time
As one of Canada’s leading natural gas producers, Peyto Exploration and Development Corp. (TSX: PEY) stock is in an enviable spot. Canada’s energy industry is enjoying a bullish demand environment that’s taking the industry to cyclical highs. Simply put, a favourable political environment that’s encouraging investment in production and infrastructure, and an opening up of the natural gas industry to the globe are strengthening demand/supply fundamentals.
Energy needs are growing in North America and abroad. In response to this, natural gas demand is growing, as it’s one of the cheapest and most abundant energy sources. Drivers include coal replacement, liquefied natural gas (LNG) exports, utilities, and data centres.
Peyto has been in the natural gas industry for decades. The company has built a lean, efficient, and low-cost business model that has proven to be resilient in all commodity price environments. Today, it’s facing one of the most bullish environments in quite some time, and the company is firing on all cylinders.
Dividend growth
As Peyto’s management has indicated numerous times, the plan has been to work toward increasing the dividend, but only if and when the debt level is in a more prudent range. So, with each month of positive cash flows, the company has been repaying debt, and therefore, reducing its leverage to a more prudent range.
Peyto Exploration stock’s recent results highlighted the strength of the business, as cash flows soared. Funds from operations came in at $227.7 million, 19% higher than the same period last year. Also, adjusted earnings per share (EPS) came in at $0.50, 19% higher than the same period last year.
This cash flow strength has continued, and as we approach the release of third-quarter results, things are looking good. In fact, Peyto announced its second monthly dividend increase on Friday – a $0.01 per share, or 8%, increase. This takes Peyto’s monthly dividend payment to $0.13 per share, for an annual dividend yield of 6.5%.
The bottom line
Peyto Exploration is a dividend stock that has been a reliable source of investor retirement income. This has been especially true in recent years as the company has grown and increased its diversification, hedging, and cost metrics.
Looking ahead, I think that Peyto’s dividend will continue to be increasingly reliable, as this dividend payer increasingly benefits from the growing fortunes of the natural gas industry and its increasingly stable business model.
