Riley Exploration Permian (NYSE: REPX) might not be a name that immediately rings a bell. It’s a smaller player in the oil production arena, with a daily trading volume that doesn’t exactly set the world on fire. Yet, with a tantalizing 5.4% yield, it deserves a closer look from income-focused investors curious about the reliability of its dividends.
Tracing the company’s free cash flow story is like watching a drama unfold. After spending years floating in the tens of millions, it took a nosedive into negative territory in 2023. But just last year, it rebounded impressively, soaring to a remarkable $117 million—the highest it’s been in a decade.
Looking ahead to this year, I anticipate a slight dip in free cash flow, possibly sliding to $114 million. It’s a delicate balance; just a small uptick could push the figure back over $117 million, which would mark a shift from decline to growth.
Currently, the Safety Net applies a one-point penalty due to the negative outlook on free cash flow growth. However, should Riley manage to achieve positive growth, that penalty could vanish.
There’s an upside here too: Riley sports a low payout ratio. In the previous year, it distributed $28 million in dividends, consuming a mere 24% of its free cash flow. This year, projections suggest a similar payout, keeping the ratio just below 25%.
This setup implies that even if free cash flow were to take a significant hit, Riley would likely have enough reserves to maintain its dividend. I generally look for companies where the payout ratio remains below 75%. This cushion ensures that the dividend is protected, even if unforeseen challenges arise.
Since 2021, Riley Exploration Permian has consistently paid—and increased—its dividend every year. While its history of dividend payments may be brief, it has been steadfast.
The only slight blemish on its record is the anticipated dip in free cash flow this year. But even then, there should be plenty of cash on hand to cover the dividend. If free cash flow edges up just an extra $3 million beyond my expectations, even this minor smudge would be wiped clean.
Never heard of Riley Exploration Permian? With its strong likelihood of maintaining its 5.4% dividend yield, it could be worth considering for your portfolio.
Dividend Safety Rating: B
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