Wednesday, 12 March 2025

How Safe Is This Small Cap Stock's 5.4% Yield?

Shield

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Editor's Note: Yesterday, Chief Income Strategist Marc Lichtenfeld unveiled his latest stock recommendation in the March issue of The Oxford Income Letter: "a 10% dividend raiser in an underappreciated industry."

This company is the epitome of a Perpetual Dividend Raiser. It has raised its dividend by at least 10% for 12 years in a row, and it earned a sparkling "A" grade from Marc's Safety Net system.

To learn more about Marc's approach to picking dividend stocks (and learn how to get access to this month's recommendation!), click here.

- James Ogletree, Managing Editor

How Safe Is This Small Cap Stock's 5.4% Yield?

Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Marc Lichtenfeld

You may not be familiar with Riley Exploration Permian (NYSE: REPX). It's a small cap oil producer that doesn't trade a lot of volume each day. But with the stock boasting an attractive 5.4% yield, income investors should give it a look to see if they can rely on the dividend.

The company's free cash flow has been an adventure. After several years in the tens of millions, it swung to a huge negative in 2023. Then, last year, it soared to its highest level in at least a decade at $117 million.

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This year, my forecast is that free cash flow will decline, but barely - to $114 million. It wouldn't take too much to move that figure above $117 million, which would flip its growth from negative to positive.

Chart: Riley's Cash Flow Has Been on a Wild Ride
View larger image
 

With free cash flow growth expected to be negative, Safety Net assesses the stock a one-point penalty. If it turns out that Riley experiences positive free cash flow growth, that penalty will be removed.

Now let's turn to the all-important payout ratio.

With the amount of cash Riley is expected to bring in, can it afford to keep paying its dividend?

Click Here to Find Out Riley's Grade
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