(Idea) MEG Energy - One Of My Favorite Names
MEG Energy’s (MEG:CA) second-quarter results were in line with analyst consensus—and our own—expectations. Adjusted funds from operations per share came in at $1.30, while free cash flow was $0.87 per share.
The company made two big announcements during the quarter. The first was MEG’s initiation of a $0.10 per share dividend, which will generate a 1.5% annual dividend yield on MEG shares at their current price of $26.
The second was management’s expectation that the company will reach its $600 million net debt target in the third quarter, at which point it intends to pivot to distributing 100% of free cash flow to shareholders through dividends and share repurchases.
The slide below details the company’s inflection to 100% free cash flow distribution. It also illustrates the outstanding capital allocation performance that has been a hallmark of this company for many years.
Source: MEG Energy June 2024 Corporate Presentation.
Management is currently guiding for long-term production growth of 3% to 5% per year. In light of the low growth trend and MEG’s operational prowess, capex is likely to be consistent and low relative to cash flow generation above $70s per barrel WTI over the coming years. Management plans to focus on pursuing low-risk, self-funded, and capital-efficient debottlenecking and project integration.