SGY:CC - Hidden Gem: This Dividend Stock Down 30.5% Is a Must-Buy
2024-02-05 20:15:00 ET
Growth stocks, particularly tech stocks, dominated the investment scene in 2023 and delivered blowout gains. The banking and energy sectors in Canada took the backseat, as evidenced by their below-par performances.
Still, many investors stuck with banks or oil & gas companies because of dividends, which most tech stocks don’t have. This year could see the comeback of these heavyweight sectors. With rate hikes over and rate cuts on the horizon, bank stocks should do better.
The energy sector’s resurgence is possible due to a positive outlook. Some industry experts say elevated oil prices, tight supply, geopolitical risks, and strengthening of global energy demand could drive energy stocks higher. Thus far in 2024, the energy sector has yet to pick up steam, but it’s coming.
Hidden gem
Surge Energy ( TSX:SGY ) is a hidden gem if you’re looking for a strong buy. At $6.34 per share, the small-cap stock is down 30.5% from a year ago. However, market analysts’ 12-month average price forecast is $12.61. Besides the 98.9% potential upside, SGY pays a juicy 7.57% dividend.
The overall return should be higher because you’d earn two ways: price appreciation and dividends. Furthermore, Surge Energy belongs to the select few TSX stocks that pay monthly dividends.
Also, 2,501 shares will transform your $15,865.34 investment into $100 in monthly passive income. The payout frequency allows you to reinvest dividends 12 times a year for faster compounding of capital. Hold the stock in a Tax-Free Savings Account for tax-free money growth and income.
Strong recovery
Sparky and SE Saskatchewan are Surge Energy’s core areas; they’re two conventional oil growth plays with exceptional economics and drilling inventory depth. The $635.99 million oil-focused exploration, development, and production company boasts a high-quality crude oil reserve and cash flow base.
Last year’s crude oil market volatility pales compared to the oil price war and global pandemic in 2020. Nearly all industry players were under pressure to preserve cash and protect the balance sheet then. Surge Energy didn’t slash dividends but made the painful decision to suspend payments on April 14, 2020.
As a result, the stock price plunged to rock bottom, or $0.16. In 2020, the company reported $747.3 million in losses. However, a strong recovery followed in the ensuing years, with net incomes of $407.6 million and $231.7 million in 2021 and 2022, respectively. Also, in 2022, cash flow from operations rose 175% year over year to $276.1 million.
Management said suspending dividend payments in 2020 was necessary to protect shareholder value and corporate cash flow. The board also promised to lift the suspension if world crude prices recover.
Surge had no monthly payouts from April 2020 to May 2022 but reinstated dividends in June 2022 and hasn’t missed a payment since. While SGY was almost worthless in April 2020, its current share price is 3,862.5% higher than its COVID-low.
Return of free cash flow
Surge Energy has yet to present its fourth-quarter and full-year 2023 results but said it is well-positioned to reward investors with more in 2024. The company’s return of free cash flow to shareholders will continue to be a phased approach. Apart from strategic share buybacks, management commits to a sustainable base monthly cash dividend.
The post Hidden Gem: This Dividend Stock, Down 30.5%, Is a Must-Buy appeared first on The Motley Fool Canada .
Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .
2024