Gear Energy getting interesting
Debt free, regular monthly dividend and low valuation
I tend to avoid small capitalization energy companies and particularly those with any material amount of debt. But when a well-run small cap oil & gas company embraces the sensible strategy of paying out free cash flow to shareholders and husbanding production to sustain or very slowly expand, I get interested. I bought Pine Cliff (PNE.TO) for precisely that reason and expect it to be a long term source of dividend income.
Gear Energy (GXE.TO) has joined Pine Cliff by getting free of debt and instituting regular monthly dividends. With the stock now about $1.20 and a payout of $0.01 per month (both $CDN) the stock yields about 10% and as far as I can tell the dividend is quite sustainable and mor likely to increase than fall if commodity prices remain anywhere around the US$80 a barrel level. With climate nutters in government engineering a global energy shortage, there is not much risk of an oil price collapse barring an economic collapse, and if there is an economic collapse it will not result in expanded world oil output so the price environment on the inevitable recovery will be a major tailwind.
Debt free oil & gas companies break even at very low prices and have plenty of free cash flow unless the commodity price goes extremely low, and if it does they have so little overhead (few employees, a tiny bit of rent, and some office costs) they can survive a downturn for an extended period. As I see, companies like GXE and PNE are quite low risk and potentially very high reward. I like the odds.
My model of Gear Energy, set out below, shows some significant potential. The 2022 model is pro forma based on a debt free status for the full year to make it comparable to the 2023 projection. The numbers are rough and the assumptions may be suspect, but the data are illustrative nonetheless, and include a drop in natural gas prices in 2023 to reflect egress issues in the WCSB.
I opened a small position of 10,000 shares and will now follow the stock.
You show the same divy amount in 22 and 23 yet 22 will only have 7 months of divy at the .01 per month
23 shows insufficient cash flow to cover the divy. Concerning to me
Couldnt agree more Michael re. GXE. Ingram is a savy leader as well. Another small cap with even stronger tailwinds is ITE.TO - worth a look