1 Excellent TSX Dividend Stock, Down 25%, to Buy and Hold for the Long Term

Down 25% from all-time highs, Tourmaline Oil is a TSX dividend stock that offers you a tasty yield of 5% in 2024.

| More on:
ways to boost income

Source: Getty Images

Investing in quality, beaten-down TSX dividend stocks is a proven strategy to generate outsized returns over time. As a company’s share price and dividend yield are inversely related, you can benefit from a higher dividend payout during periods of economic turmoil.

While the broader markets are trading near all-time highs, the rally is driven primarily by high-flying tech stocks. Alternatively, lower oil prices have meant that energy stocks are trailing the TSX index over the last 12 months.

The ongoing pullback in the oil and gas sector allows long-term income-seeking investors to buy and hold blue-chip dividend stocks in their equity portfolios. One top TSX stock is Tourmaline Oil (TSX:TOU), which is down almost 25% from all-time highs, increasing its dividend yield to over 5%.

Is Tourmaline Oil stock a good buy right now?

Valued at a market cap of $24 billion, Tourmaline Oil is among the largest companies in Canada. Founded in 2008, TOU stock went public in November 2010. Since its initial public offering, Tourmaline stock has returned over 350% to shareholders in dividend-adjusted gains. Comparatively, the cumulative returns of the TSX index totalled 217% in this period.

Tourmaline Oil is part of the energy sector producing oil and natural gas in the Western Canadian Sedimentary Basin. Despite lower natural gas prices, Tourmaline ended the third quarter (Q3) with an operating cash flow of $742 million or $2.09 per share and net earnings of $355 million. The company allocated $591 million towards capital expenditures, suggesting its free cash flow totalled $152 million in the September quarter.

Given a base dividend payout of $0.35 per share, Tourmaline Oil’s quarterly dividend expense totals roughly $140 million. We can see that the company’s base dividend payout is sustainable even amid lower commodity prices. Moreover, the TSX giant continues to invest heavily in organic growth, which should drive future cash flow and higher dividend payouts.

In addition to a base dividend, Tourmaline Oil pays shareholders a special dividend tied to its free cash flow. When oil prices touched multi-year highs in 2022, Tourmaline Oil’s total annual dividends stood at $8.79 per share in July 2023, indicating a trailing yield of 13.8%, which is exceptional.

During its Q3 earnings call, Tourmaline announced a special dividend of $0.50 per share, bringing total dividends in 2024 to $3.25, indicating a yield of 5%.

What’s next for the TSX dividend stock?

A key driver of Tourmaline’s stock price is the company’s earnings growth. Over the past decade, Tourmaline Oil has expanded adjusted earnings at an annual rate of 12.1% despite multiple downturns in the energy sector. The TSX heavyweight plans to drill 365 wells in 2025 and increased its production guidance to 635,000 and 665,000 barrels of oil equivalent per day.

Analysts tracking the TSX dividend stock expect adjusted earnings to expand from $3.54 per share in 2024 to $6.07 per share in 2025. Meanwhile, its free cash flow is forecast to increase from $1.17 billion in 2024 to $1.4 billion in 2025. So, priced at 10.5 times forward earnings, TOU stock is cheap and trades at a discount of 25% to consensus price target estimates.

With strong operational performance and growing production, Tourmaline offers an attractive combination of growth and income. While natural gas prices remain a risk factor, the company’s efficient operations and widening dividend yield make it a solid investment option in December 2024.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Tourmaline Oil. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Start line on the highway
Dividend Stocks

1 Incredibly Cheap Canadian Dividend-Growth Stock to Buy Now and Hold for Decades

CN Rail (TSX:CNR) stock is incredibly cheap, but should investors join insiders by buying the dip?

Read more »

bulb idea thinking
Dividend Stocks

Down 13%, This Magnificent Dividend Stock Is a Screaming Buy

Sometimes, a moderately discounted, safe dividend stock is better than heavily discounted stock, offering an unsustainably high yield.

Read more »

Canadian Dollars bills
Dividend Stocks

Invest $15,000 in This Dividend Stock, Create $5,710.08 in Passive Income

This dividend stock is the perfect option if you're an investor looking for growth, as well as passive income through…

Read more »

A Canada Pension Plan Statement of Contributions with a 100 dollar banknote and dollar coins.
Dividend Stocks

3 Compelling Reasons to Delay Taking CPP Benefits Until Age 70

You don't need to take CPP early if you are receiving large dividend payments from Fortis Inc (TSX:FTS) stock.

Read more »

A worker overlooks an oil refinery plant.
Dividend Stocks

Better Dividend Stock: TC Energy vs. Enbridge

TC Energy and Enbridge have enjoyed big rallies in 2024. Is one stock still cheap?

Read more »

Concept of multiple streams of income
Dividend Stocks

Got $10,000? Buy This Dividend Stock for $4,992.40 in Total Passive Income

Want almost $5,000 in annual passive income? Then you need a company bound for even more growth, with a dividend…

Read more »

Investor reading the newspaper
Dividend Stocks

Emerging Investment Trends to Watch for in 2025

Canadians must watch out for and be guided by emerging investment trends to ensure financial success in 2025.

Read more »

RRSP Canadian Registered Retirement Savings Plan concept
Dividend Stocks

Watch Out! This is the Maximum Canadians Can Contribute to Their RRSP

We often discuss the maximum TFSA amount, but did you know there's a max for the RRSP as well? Here's…

Read more »