Quarterly dividends are the norm in the United States, and if you're leaning on dividend income, quarterly budgeting is different from monthly budgeting. However, there's another option if you look hard enough, with Canadian energy companies Vermilion Energy Inc. (NYSE: VET) and AltaGas Ltd. (NASDAQOTH: ATGFF) offering both monthly dividends and sizable yields.
1. A growing oil business
Vermilion's history spans three distinct phases. The Canadian oil and gas driller was structured as a regular corporation from its initial public offering in 1994 until 2003, when it converted to a Canadian Royalty Trust. This structure offered tax advantages and allowed for a sizable amount of income to be passed through to shareholders. It was in 2003 that Vermilion started paying monthly dividends. The royalty structure proved too generous, however, and the Canadian government changed the tax system to limit abuses of the structure. That led Vermilion to convert back to a regular corporation in 2010. However, it did so without lowering its dividend or changing its dividend frequency. Other royalty trusts weren't able to make such a smooth transition.
That said, Vermilion's dividend hasn't gone up every year. But it has trended generally higher since 2003, with the most recent hike coming in early 2018. But there's one more takeaway here: the dividend wasn't cut during the deep oil downturn that started in mid 2014. (Note that Vermilion's dividend is paid in Canadian dollars and gets converted to U.S. dollars at whatever the current exchange rate happens to be. That makes the payment look as if it changes every month even though this isn't the case in Canadian dollars.) So despite a lot of change and volatility, Vermilion has proven it is focused on rewarding investors with a monthly dividend check. Right now the yield is a robust 6.8%, partially because the company is relatively small ($4 billion market cap) and, well, it isn't exactly a household name.
That said, while you may not have heard of it, it is a sizable energy business with growing production. Vermilion has operations in North America, Europe, and Australia, with annualized production expanding roughly 6% a year between 2003 and 2012 before jumping to 13% a year. A recent acquisition, meanwhile, kicked that last figure up to 17%. The company is spending around $500 million in 2018 with the goal of upping production around 10%. That's still a pretty impressive growth target, aided by the company's modest size. If you are looking for a growing energy company that has a proven history of rewarding investors with growth and monthly dividends, high-yielding Vermilion should be on your short list today.
2. Even more yield, even more diversification
AltaGas is a similarly sized Canadian energy company but with a lot more diversification. Its business spans the midstream sector and the electric and natural gas utility space. On the midstream side, it owns assets across North America that help move oil and natural gas from where they are pulled from the ground to where they eventually get processed and consumed. This is largely a toll-taker business that provides steady revenues. This business should provide around a third of EBITDA in 2019.
On the utility side, AltaGas owns regulated gas utilities and merchant power assets. The merchant power business sells electricity to utilities under long-term contracts. Merchant power should provide between 25% and 30% of EBITDA in 2019. The regulated utility operations, meanwhile, provide natural gas to customers in Canada and the United States with monopolies in its markets, but the company must ask regulators for approval to make rate changes. This division could account for as much as 45% of EBITDA in 2019 (a notable increase over the 36% of EBITDA the division represented in 2017).
The year 2019 is actually an important one, because AltaGas just recently completed the purchase of WGL Holdings, a U.S. natural gas utility. It's currently working on digesting that acquisition and reshaping its business with an increasing focus on more stable operations (note the change in EBITDA from regulated utilities). Part of this effort includes selling noncore assets to help pay down the debt associated with the $8.4 billion CAD WGL purchase.
Although the company is working on integration right now, it expects that adding WGL's assets will help push long-term earnings growth up from a projected 7% to 9% between 2017 and 2021 to a new range of 8% to 10%. Dividends should grow at roughly the same pace as earnings. That's a very generous dividend growth rate. (Like Vermilion's, AltaGas's dividend is paid in Canadian dollars and is subject to the same exchange rate fluctuations that make it look more variable than it really is.)
The current yield is around 9.3%, a high level driven partially by the uncertainty of the integration process and the leverage needed to consummate the deal (which is being worked on, as noted above). The dividend, meanwhile, has been increased annually since 2010 and is paid monthly. Investors looking for monthly income shouldn't be scared away by the high yield here. AltaGas is worth a close look even for more conservative types as it works to become a more stable business.
Two stocks that pay you monthly
You may not have heard of Canadian companies Vermilion or AltaGas, but they each have a solid history of rewarding investors with monthly dividend checks. The yields, meanwhile, are fairly substantial. Clearly you need to get to know them both a little better, but now that you have a little background, I'm certain you'll want to dig further into their stories. And once you do, you might even decide to put one (or both) of these monthly-dividend energy stocks into your portfolio.
10 stocks we like better than Vermilion EnergyWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Vermilion Energy wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of August 6, 2018