A satellite investment in a diversified portfolio can benefit from being a value company like Parex Resources Stock (TSX:PXT), which also offers a nice dividend. It is a Calgary-based oil-weighted producer, but Colombia is where it conducts business. As a result, it benefits from the high price of Brent oil. It is the largest independent operator in Colombia and has been in business for over a decade.
Market-beating returns potential but with higher risk
The energy stock is beneficial to shareholders. It has a history of generating returns for shareholders. Nearly 14% annualized gains over ten years have outperformed the Canadian market return by 5.8%. But the market volatility increased by nearly 3.5 times as well. The management expects to continue returning all free cash flow to shareholders as dividends and stock buybacks.
It should be noted that in the second half of 2021, Parex shares only recently began paying a common equity dividend. The dividend should increase the stability of its stock and the dependability of its returns.
It grew its land holdings by about four times by the end of 2021. The application of proven technology in exploration activities could lead to stronger long-term growth. By taking advantage of onshore gas potential, Parex Resources is also growing its portfolio.
Parex Resources Stock intends to boost production by around 15% to 60,000 barrels of oil equivalent per day by 2023. The management also predicts that, even with infrastructure costs, the average well payout will only last roughly eight months. These quick-cycle projects ought to shield you against fluctuations in commodity prices. The main goals will be to reduce the decline and boost capital efficiency. It currently has a portfolio of roughly 15 high-impact exploration opportunities. The company’s current portfolio may generate base growth of 5% annually, even without exploration upside.
What’s weighing Parex Resources stock?
The political risk in Colombia and the windfall tax are the factors that impact the oil stock most. Because of this, the stock is trading at a discount to its industry. Lower profits due to higher taxes would mean fewer contributions to retained earnings for stockholders’ equity.
In the past year, the energy stock has decreased by 17%. At the time of writing, it trades at around 3.6 times and 2.2 times the anticipated earnings and cash flow for this year, respectively. The highly affordable shares should result in a successful stock-buyback program that enables Parex to buy back up to 10% of its publicly traded stock.
The business is prepared to produce cash flows at a range of Brent oil prices. At US$60 per barrel, Parex can make around $5 in operating income per share this year. It can produce more than $6 per share at US$80 for Brent. The price of Brent oil is currently above US$80 per barrel.
According to the opinion of 11 analysts, the company is nearly 40% undervalued at the current price and may rise 74% over the coming year. Additionally, it provides a nice yield of about 5%. Its sustainable payout ratio for the preceding twelve months was 21% free cash flow.
In other words, compared to a one-year Guaranteed Investment Certificate that offers a 5% interest income and principal guarantee, owners might benefit from a 5% return and significant price increase for the higher volatility they experience. In addition, Parex Resources pays qualified dividends, which are treated more favorably in non-registered accounts than interest income, which is subject to full marginal taxation.