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Cardinal Energy: High Free Cash Flow Yield

Published Mon, 20 May 2019 08:01:48 -0400 on Seeking Alpha

With the recovery of Canadian oil prices since the beginning of the year, Cardinal Energy (OTC:CRLFF) reported strong Q1 results. Despite the small production drop due to the production curtailment in Alberta, management maintained the goal of holding production flat for the full year. Also, the net debt decreased and management raised the dividend.
Yet, the market values the company at a free cash flow yield close to 20% with conservative assumptions. Considering the low valuation, I'd prefer management to repurchase shares instead of paying a dividend.
But the company is interesting for dividend-oriented investors. The 2019 dividend is safe, and there's a strong possibility for a dividend increase in 2020.
Before discussing the valuation and the capital allocation decisions, let's take a look at the Q1 results.

Image source: Skeeze via Pixabay
Note: All the numbers in the article are in Canadian dollars unless otherwise noted.
Q1 Results
Due to the production curtailments in Alberta, production dropped 4% year over year.

Source: Q1 2019 MD&A
The temporary restrictions don't impact the strategy of the company in a significant way though. According to the latest presentation, Cardinal's goals are sustainability (with modest production growth) and low risks.
The table below shows that despite higher operating costs, the company profited from the recovery of Canadian oil prices.
Bringing back the Q4 2018 shut in production... Read more