Is Vermilion Energy and its 12% Dividend Worth the Risk?

Vermilion Energy Inc (TSX:VET)(NYSE:VET) currently pays a dividend yielding more than 12% per year. While that’s certainly high and warrants a closer look, in a recent interview with BNN Bloomberg, its President and CEO Anthony Marino dismissed the idea of a dividend cut being imminent or necessary.

Instead, he indicated that the company remains committed to paying the dividend and that it is a priority.

Investors have good reason to be concerned, after all, Vermilion has had negative free cash in three of its past six quarters. And when free cash has been positive, it has normally been below the amount that the company has paid out in dividends.

There are some warning signs for the dividend and the stock, which has lost around half of its value in the past year.

However, at a price-to-earnings ratio of 11 and trading at just 1.4 times its book value, it could be an attractive price to buy the stock at. While there’s certainly risk that the share price could drop even further, there’s also the possibility that now that the stock has become oversold and trading at very low multiples, it could attract some value-oriented investors.

Vermilion is still a profitable company and one that has been able to grow its sales in recent years.

Overall, the stock is not nearly as bad as its performance suggests and there’s definitely room for it to rebound. If that happens, combined with its dividend, it could produce significant returns for investors that are willing to take a chance on the stock and buy it today.