Printed on October eighth, 2024 by Aristofanis Papadatos
Paramount Sources (PRMRF) has two interesting funding traits:
#1: It’s providing an above common dividend yield of 6.4%, which is greater than 5 occasions the dividend yield of the S&P 500.#2: It pays dividends month-to-month as a substitute of quarterly.
You possibly can obtain our full Excel spreadsheet of all month-to-month dividend shares (together with metrics that matter like dividend yield and payout ratio) by clicking on the hyperlink beneath:
The mix of an above common dividend yield and a month-to-month dividend render Paramount Sources interesting to particular person buyers.
However there’s extra to the corporate than simply these components. Hold studying this text to be taught extra about Paramount Sources.
Enterprise Overview
Paramount Sources explores for and produces oil and pure fuel from standard and unconventional fields within the Western Canadian Sedimentary Basin.
The corporate holds pursuits within the Karr and Wapiti Montney properties, which cowl an space of 185,000 web acres situated south of the town of Grande Prairie, Alberta. The corporate was based in 1976 and is predicated in Calgary, Canada.
Paramount Sources has a median manufacturing charge of about 100,000 barrels per day and complete proved reserves of 415 million barrels of oil equal, with oil and fuel at a 49/51 ratio.
Supply: Investor Presentation
Additionally it is essential to notice that the corporate has 46% possession by insiders. This can be a remarkably excessive % of possession, which leads to the alignment of pursuits between insiders and the opposite particular person shareholders.
As an oil and fuel producer, Paramount Sources is very cyclical as a result of dramatic swings of the costs of oil and fuel. The corporate has reported losses in 5 of the final 10 years and resumed its dividend funds solely in the summertime of 2021, after 22 years with out a dividend fee.
However, Paramount Sources has some benefits when in comparison with the well-known oil and fuel producers. Most oil and fuel producers have been struggling to replenish their reserves as a result of pure decline of their producing wells.
Quite the opposite, Paramount Sources posted an exceptionally excessive reserve alternative ratio of 140% in 2023. Because of this, the corporate expects its manufacturing in 2028 to be practically 50% increased than its manufacturing in 2023.
The reserve alternative ratio is paramount within the oil and fuel trade. With no stable reserve alternative ratio, a producer can not develop its earnings in a sustainable method in the long term.
The value of pure fuel has plunged as a result of abnormally heat winter climate for 2 years in a row. The value of oil has slumped practically 50% off its peak in early 2022 however it has remained above common due to the sustained manufacturing cuts executed by OPEC and Russia.
Because of this, Paramount Sources has posted earnings per share of $1.72 within the final 12 months. These earnings per share are 50% decrease than the 7-year excessive earnings per share of the corporate in 2022 however they’re above common.
Progress Prospects
Paramount Sources posted among the many highest reserve alternative ratios within the oil and fuel trade in 2022 and 2023.
Even higher, the corporate has ample room for manufacturing development due to the acceleration of its growth efforts in its producing areas.
Supply: Investor Presentation
Paramount Sources has a confirmed document of figuring out key useful resource areas, with a low decline charge and greater than 15 years of manufacturing.
However, as an oil and fuel producer, Paramount Sources is very delicate to the cycles of the costs of oil and fuel. That is clearly mirrored within the efficiency document of the corporate, which has posted materials losses in 5 of the final 10 years.
The value of oil has slumped practically 50% off its peak in 2022. Because of this, the corporate is more likely to publish a lot decrease earnings per share this yr.
Given the promising manufacturing development prospects of Paramount Sources but in addition the extremely cyclical nature of the oil and fuel trade, we count on the earnings per share of Paramount Sources to develop by about 2.0% per yr on common over the subsequent 5 years, from an estimate of $1.50 this yr to $1.66 in 2029.
Dividend & Valuation Evaluation
Paramount Sources is presently providing an above common dividend yield of 6.4%, which is greater than 5 occasions as a lot because the 1.2% yield of the S&P 500. The inventory is thus an attention-grabbing candidate for income-oriented buyers however the latter ought to be conscious that the dividend is much from secure as a result of dramatic cycles of the costs of oil and fuel.
Paramount Sources has an honest payout ratio of 46%. As well as, the corporate has a powerful steadiness sheet, with web debt of solely $525 million.
As this quantity is simply 17% of the market capitalization of the inventory, it’s definitely manageable and can assist the corporate endure the subsequent downturn of the power sector with none liquidity points. Additionally it is outstanding that Paramount Sources pays negligible curiosity expense yearly.
Nevertheless, it’s important to notice that Paramount Sources reinstated its dividend solely in mid-2021, after 22 years with out a dividend fee.
The corporate failed to supply a dividend within the previous years, because it incurred materials losses in lots of these years. Due to this fact, it’s evident that the dividend of the corporate is much from secure.
In reference to the valuation, Paramount Sources is presently buying and selling for 13.9 occasions its anticipated earnings per share of $1.50 this yr.
Given the excessive cyclicality of the corporate, we assume a good price-to-earnings ratio of 12.5, which is a typical mid-cycle valuation degree for oil and fuel producers.
Due to this fact, the present earnings a number of is increased than our assumed honest price-to-earnings ratio. If the inventory trades at its honest valuation degree in 5 years, it can incur a -2.1% annualized drag in its returns. This drag will offset our anticipated 2.0% common annual development of earnings per share over the subsequent 5 years.
Taking into consideration the two.0% annual development of earnings per share, the 6.4% present dividend yield and a -2.1% annualized contraction of valuation degree, Paramount Sources may supply a 5.8% common annual complete return over the subsequent 5 years.
The modest anticipated return indicators that the inventory is unattractive from a long-term perspective, as we’ve got handed the height of the cycle of the oil and fuel trade. Due to this fact, buyers ought to look forward to a decrease entry level.
Remaining Ideas
Paramount Sources has been thriving since early 2022 due to the above common costs of oil and fuel. The inventory is providing an above common dividend yield of 6.4%, with a payout ratio of 46%. Because of this, it’s more likely to entice some income-oriented buyers.
Nevertheless, the corporate has proved extremely weak to the cycles of the costs of oil and fuel. As the value of oil has peaked and should have materials draw back, the inventory is dangerous proper now. Due to this fact, buyers ought to look forward to a extra engaging entry level.
Furthermore, Paramount Sources is characterised by beneath common buying and selling quantity. Which means it could be laborious to ascertain or promote a big place on this inventory.
Further Studying
Don’t miss the sources beneath for extra month-to-month dividend inventory investing analysis.
And see the sources beneath for extra compelling funding concepts for dividend development shares and/or high-yield funding securities.
Thanks for studying this text. Please ship any suggestions, corrections, or inquiries to help@suredividend.com.
