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  5. CJ: My current yield on this is 19 percent which is hard to replace. [Cardinal Energy Ltd.]
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Q: My current yield on this is 19 percent which is hard to replace. My concern is that they can’t afford to pay the dividend and are using debt to make up the shortfall. Is there a possibility of a dividend cut here and at what price oil price should it be safe ? How does the debt look ?
Asked by Andre on December 05, 2024
5i Research Answer:

CJ has a minimal amount of debt ($74M) and generated $264M in operating cash flow in the last 12 months. Even after spending, it had $84M in free cash flow. The 12-month payout ratio is 41%. The last dividend hike was in October 2022. It has cut dividends in the past (2016 and 2018) and stopped dividends altogether for three months in the pandemic. But right now, it is in solid financial shape and much better than in prior cycles. It does not need to cut the dividend, though the dividend is entirely discretionary by management. But debt is 0.3X one year's cash flow and very manageable. The stock is very cheap at 9X earnings. It does not provide break-even oil numbers, but in its corporate presentation notes it has added new reserves at less than $11/barrel. It should be able to withstand lower oil prices fairly easily.