Top picks 2013: Vermilion Energy
This Canadian energy company has proven the ability to weather even the toughest of times.
A favorite aggressive pick for 2013 is Vermilion Energy (VEMTF), a former Canadian income trusts producing oil and gas that did not cut dividends either in 2008 when oil prices crashed or when converting to a corporation in 2010.
In fact, it recently raised its dividend, while others in its industry are cutting or eliminating dividends. The 5.3% increase in the payout to a new monthly rate of 20 cents Canadian per unit is the first since an 11.8% bump announced in December 2007.
The company has been able to keep dividends rising in a volatile industry for two major reasons. First, they control their leverage. The company has no debt maturities to meet between now and 2015, and debt-to-annualized cash flow is among the very lowest in the industry.
Second, the company is heavily focused on production of oil and natural gas liquids, rather than natural gas that's been in a downtrend the past five years. Vermilion also draws more than two-thirds of output outside North America; this gas sells for global prices that are several times what gas fetches in North America.
Vermilion continues to add properties overseas in selected countries, including the $86 million purchase of lands in France this month that are complementary to properties it already owns.
The French acquisition was announced at the same time as the dividend increase, and its accretive implications no doubt raised management's comfort level for a boost.
The company is also enjoying strong success drilling light oil in Canada's Cardium region, and is on track for expansion in Australia and the Netherlands as well.
Sometime in the next few weeks, Vermilion plans to list its stock on the NYSE under the symbol "VET."
A global crash in energy prices would obviously have an impact on stocks of energy producers across the board. But perhaps no Canadian company has proven its ability to weather tough times in the past. And that's the key to even bigger returns long term. Buy up to $52.
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Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
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