A healthy cash flow points out to an increase in dividend soon or increasing capital investments. Taking a look at the free cash flow yield, the yield divides the company’s free cash flow by its market cap, giving a better sense of how investors are valuing the company’s cash production. Here’s what a few sources took my attention to. Courtesy: Barron’s
Oil and gas companies are more focused on cash generation than they have been in years, if ever. Investors are suspicious due to the industry’s failure to offer substantial cash returns in the past, therefore firms are attempting to demonstrate that they can create consistent returns while remaining debt-free.
We take a look at Kinder Morgan which has the highest dividend yield amongst the above-mentioned stocks.
Executive Chairman Richard Kinder said on the earnings call last month that the stock “provides you with a nice locked-in return with this dividend and then provides really good optionality for the future.” It is an infrastructure corporation that has profited from good energy sector developments. It already increased its dividend by 3% in April and currently has a 6.6 percent dividend yield, which is among the highest in the energy sector.
Analysts say that its earnings are supposed to grow at the rate of 15.24% per year and its earnings grew by a whopping 1481.8% over the past year owing to the negligible earnings over the last year.
Let’s run through the other stocks mentioned in the list
Targa Resources is an energy infrastructure firm that gathers, stores, and processes natural gas. Targa is well-positioned to benefit due to the rising demand for gas throughout the world. The dividend yield on the stock is less than 1%, but it is expected to rise. On the company’s most recent results conference, CEO Matthew Meloy stated that management will recommend to the board a $1.40 annual dividend due in February, bringing the dividend yield to 2.6 percent at the current stock price.
EQT is a major natural gas producer in the United States. As gas prices have increased, it has gained, however it hedged part of its output at lower rates and hence will not realise the whole advantage. EQT, on the other hand, has been producing enough income to reintroduce its dividend. On the business’s most recent earnings call, CEO Toby Rice stated that the company wants to pay investors a “modest but meaningful” dividend as well as stock buybacks.
PDC’s current dividend yield of 0.9 percent is low, but if it can continue to generate cash, it will certainly increase. Even if oil and gas prices fall by more than 20% from current levels, the business expects to produce $2.5 billion in free cash flow between 2021 and 2023, which is over half of its present market capitalization.