Is TORC Oil & Gas Ltd (TSE:TOG) A Strong Dividend Stock?
Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, TORC Oil & Gas Ltd (TSE:TOG) has paid dividends to shareholders, and these days it yields 4.1%. Let’s dig deeper into whether TORC Oil & Gas should have a place in your portfolio.
Check out our latest analysis for TORC Oil & Gas
How I analyze a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
Is it the top 25% annual dividend yield payer?
Has it paid dividend every year without dramatically reducing payout in the past?
Has it increased its dividend per share amount over the past?
Can it afford to pay the current rate of dividends from its earnings?
Will it be able to continue to payout at the current rate in the future?
How well does TORC Oil & Gas fit our criteria?
TOG currently pays out twice what it is earning, according to its trailing twelve-month data, meaning that the dividend is predominantly funded by retained earnings. In the near future, analysts are predicting a more sensible payout ratio of 78.4%, leading to a dividend yield of around 4.0%. In addition to this, EPS should increase to CA$0.30, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Unfortunately, it is really too early to view TORC Oil & Gas as a dividend investment. It has only been consistently paying dividends for 5 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Relative to peers, TORC Oil & Gas has a yield of 4.1%, which is high for Oil and Gas stocks but still below the market’s top dividend payers.
Next Steps:
After digging a little deeper into TORC Oil & Gas’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. Below, I’ve compiled three key aspects you should further research:
Future Outlook: What are well-informed industry analysts predicting for TOG’s future growth? Take a look at our free research report of analyst consensus for TOG’s outlook.
Valuation: What is TOG worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether TOG is currently mispriced by the market.
Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
