TSX’s energy sector had a weak start in 2023 due to declining oil prices but has recovered from the slump. It’s now the second top-performing sector (+12.1%) after information technology (+28.3%), even outperforming the broader market (-1.4%) as of this writing.
Many energy stocks are back as volume leaders but a never-heard-of dividend stock could be the best buy for income-focused investors. PHX Energy Services (TSX:PHX) is up 3.4% year-to-date, with an overall return of 518.4% in three years.
At only $7.53 per share, this high-growth dividend stock pays a lucrative 7.97% dividend. If you purchase 500 PHX shares today ($3,765 investment), you’ll receive $75 in quarterly dividends ($0.60 annual dividend per share).
The $373.2 million drilling company provides leading-edge services and technologies to oil and gas producers. Given its impressive financial results in the second quarter and first half of 2023, PHX can live up to its commitment to delivering shareholder value and healthy returns.
Strong earnings, high dividends
PHX Energy’s strong earnings seem unstoppable following record 2022 year-end and Q1 2023 financial results. In Q2 2023, consolidated revenue increased 23% to $155.6 million versus Q2 2022, the highest second-quarter revenue and the third-highest quarterly revenue in PHX’s history.
Net earnings rose 41% year over year to $18.1 million. Notably, excess cash flow (net of maintenance capital expenditures) reached $25.5 million or 180% higher than a year ago. For the six months that ended June 30, 2023, net earnings soared 286% to $40.5 million compared to the first half of 2022.
PHX also paid $15.3 million in dividends, representing a 143.8% jump versus the same period last year. Management said PHX produced strong financial and operational results during the quarter, notwithstanding a softening market. Its President, Michael Buker, said the Canadian division’s $29.4 million quarterly revenue was also a new record.
If you purchase 500 PHX shares today ($3,765 investment), you’ll receive $75 in dividends every quarter ($0.60 dividend per share). The energy stock has made dividend payments for 31 consecutive years, based on published data. Also, the generous dividends should be sustainable, considering the low 38.5% payout ratio.
Growth-oriented strategy
PHX Energy operates worldwide and has in-depth technical knowledge of the land drilling market in the key basins of North America. Besides directional drilling and motor rentals, PHX provides survey management (for accuracy) and gyro surveying (for cost-savings) services.
Management firmly believes its growth-oriented strategy of providing unmatched solutions to oil and gas producers is a competitive advantage. For the remainder of 2023, Buker expects the US activity to stabilize as oil commodity prices strengthen. In Canada, he anticipates the industry activity to continue to trend above the previous year’s levels.
PHX also plans the delivery of the additional equipment to meet the volume of forecasted activity. The assessment of future capital requirements in the coming months and anticipated growth in 2024 is ongoing. There will be early orders for certain materials and items that need extended lead times for delivery.
Top pick
PHX Energy Services deserves serious consideration for its impressive financial results and fat returns in the last three years. The high dividend yield makes it a top pick in the resurging energy sector.
