Thursday’s TSX breakouts: There’s potential downside risk for this high dividend stock

On today's price breakouts list, there are five positive breakouts (stocks with positive price momentum), while the list of negative breakouts (stocks with negative price momentum) has been relatively steady, at 46 today.

However, this will change significantly tomorrow. It feels like we could finally be seeing signs of capitulation. Until we see a washout in the equity markets, the volatility with the aggressive rallies and retreats will likely continue. With European bank stocks getting hammered, this may signal a breaking point – the capitulation investors have been waiting for.

Investors' portfolios have sharply and painfully lost significant value year-to-date. While, it appears like the band-aid is being ripped off, and the pain may intensify, this may lead to a recovery.

It feels premature to be buying. Watch for the negative breakouts list to grow, and spread to more and more fundamentally sound stocks for an indication of capitulation. Meanwhile, expect the number of safe haven gold stocks to expand on the positive breakouts list as fear intensifies.

Discussed below is Calgary-based Granite Oil Corp. (GXO-T), a high-dividend paying energy stock that climbed to a 49-day high, just missing the positive breakouts list as I screen for stocks reaching a 55-day high. The stock is up 3 per cent year-to-date, while the price of oil is down 26 per cent (and falling another 3 per cent this morning).

Oil hedges have provided the company with downside protection from the sliding commodity price. According to an August 2015 investor presentation, the company was over 50 per cent hedged in the second half of 2015.

While the stock price has held its ground, the falling price of oil may grip this stock and drag it down as its attractive hedged position unwinds and valuations for its peers in the energy sector contract. The stock's resiliency to-date may be a selling opportunity for investors.

A brief outline is provided that may serve as a springboard for further fundamental research.

Dividend policy

In November, management increased its monthly dividend by 8 per cent to 3.5 cents per share, or 42 cent per year, equating to an annualized dividend yield of 5 per cent.

The funds from operations payout ratio was 65 per cent last quarter.

Analysts' recommendations

This small cap stock, with a market capitalization of approximately $250 million, is well covered by the Street, with large firms such as RBC Capital Markets, TD Securities, CIBC World Markets and National Bank Financial covering the stock.

According to Bloomberg, all 10 analysts whom cover this stock have buy recommendations. The average one-year price target is $9.19, implying a potential price return of 10 per cent over the next year. Price targets range from a low of $7.50 to a high of $10.50.

The consensus cash flow per share forecast is $1.57 in 2015, falling to $1.03 in 2016, and rebounding to $1.29 in 2017.

Chart watch

The stock chart may be forming a multiple head and shoulders pattern – a bearish technical formation. It appears like the stock may currently be in the process of forming a second right shoulder in a head and shoulders pattern.

The stock has technical support at $7.50, near its 50-day moving average, and failing that at $7, near its 200-day moving average.

The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company's dividend policy, analysts' recommendations, and provides a brief technical analysis for a stock to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a stock appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

Below is a list of stocks in the S&P/TSX composite index and the S&P/TSX Small Cap index that are technically breaking out, reaching new 55-day highs or lows. Stocks on the positive breakouts list have displayed positive price momentum during this period. Stocks on negative breakouts list have experienced negative price momentum.