Tuesday’s TSX breakouts: This stock’s dividend has never been cut, features 5.9% yield

Equity markets ended the month of July on a subdued note.

On Friday, the S&P/TSX composite index rallied 30 points, or 0.21 per cent to close at 14,583. Gold stocks helped lift the TSX Index higher with the price of the yellow metal increasing 1.2 per cent to $1,358 per ounce (U.S.). There were 142 stocks in the TSX Index that advanced, 93 stocks declined, and five securities closed the day unchanged.

During the month of July, the TSX Index climbed 3.68 per cent with gains across every sector, except for the energy sector. The leading sector was information technology, which jumped 9.2 per cent. Amongst the best performing securities were gold stocks such as B2Gold (BTO-T) and IAMGOLD (IMG-T), as well as forest products stocks, namely Interfor (IFP-T) and Norbord (OSB-T), all of which reported stellar returns during the month.

Year to date, the TSX Index has increased 12.09 per cent driven by huge gains notably from gold and silver stocks.

On today's Breakouts Report, there are 49 securities on the positive breakouts list (stocks with positive price momentum), and 12 stocks on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock whose share price steadily rose in July. If the positive price momentum continues, this stock may surface on the positive breakouts list in the future. The stock has an attractive dividend yield of nearly 6 per cent. Management has maintained its monthly dividend at its current level since early 2014 despite the weakness in commodity prices. With 12 'buy' recommendations and an average forecast one-year price return of 14 per cent, this is a stock that investors may want to do some research on. The security I am referring to is Vermillion Energy Inc. (VET-T).

The price of oil has plunged 17 per cent in recent weeks, to $41.60 (U.S.) a barrel on July 29 from $51.23 on June 8. For long-term investors, this correction may soon mark a buying opportunity - once we see the price of oil stabilize. Remember, prices often overshoot to the upside and downside.

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

The company

Vermillion is a diversified international energy producer with operations across three core geographies: North America, Europe, and Australia. In 2015, 60 per cent of its production was from crude oil and NGLs (natural gas liquids), and 40 per cent was from natural gas. Management's objective is to achieve 2016 production of approximately 62,500 to 63,500 barrels of oil per day, 15 per cent year-over-year growth. The company has 31 per cent of its production hedged for 2016 and 18 per cent hedged for 2017.

The company is dual-listed, trading on both the New York Stock Exchange as well as the Toronto Stock Exchange under the same ticker, VET.

Management and directors' ownership is approximately 6 per cent.

Dividend policy

The company pay shareholders a monthly dividend of 21.5 cents per share, or $2.58 yearly per share. This equates to an annualized dividend yield of 5.9 per cent.

Management is committed to providing investors with dependable dividend income along with prudent dividend increases. Despite the meltdown in commodity prices that started in 2014, management has maintained its monthly dividend at its current 21.5 cents per share level. Management has never cut its dividend but has steadily increased it over the years. Its last dividend hike announcement occurred in January 2014, a 7.5 per cent dividend increase.

Valuation

Many analysts derive target prices using an enterprise value-to-debt-adjusted cash flow multiple.

The average one-year target price is $49.38, implying a potential price return of nearly 14 per cent over the next 12 months. Target prices range from a low of $42 to a high of $60. Individual target prices are as follows: $42, $43, two at $47.50, three at $48, two at $49, two at $50, $52, two at $52.50, $53, $58, and $60.

Analysts' recommendations

According to Bloomberg, there are currently 17 analysts whom have issued research reports in 2016, of which 13 have 'buy' recommendations and four have 'hold' recommendations. There are no 'sell' recommendations.

The consensus estimate has moved higher over the past few months. Since March 31, the consensus 2016 cash flow per share estimate has increased to $4.05 per share from $3.87. Similarly, the consensus 2017 estimate is up, currently at $5.18 from $4.85 in March.

Chart watch

The share price has been in a downtrend since mid-2014. Year to date, the stock price is up nearly 16 per cent.

The share price is forming a symmetrical triangle with the upper resistance line converging with the lower support line. The upper boundary line, the resistance line, is forming lower highs, while the lower boundary line, the support line, is forming higher lows. This formation can result in either a positive breakout with the share price moving higher, or a negative breakout with the share price moving lower with nearly an equal probability for either outcome.

Should the share price breakout to the upside, there is large resistance around $50, and after that, there is resistance between $55 and $56.

Should the stock price breakout to the downside, there is initial support around $42, which is near its 50-day moving average (at $42.51), and failing that, at $40, close to its 200-day moving average (at $39.80).

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 security 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 security 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 securities principally from 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. Securities on the positive breakouts list have displayed positive price momentum during this period. Securities on negative breakouts list have experienced negative price momentum.