The Canadian vitality area has turn into a incredible searching floor for passive-income buyers looking for juicy dividends. Many oil corporations have shifted their focus from expensive capital investments to prioritizing shareholder returns, and Parex Assets (TSX:PXT) inventory stands out with its eye-popping 8.3% dividend yield.
However every time a yield climbs that top, savvy buyers should ask if it’s a real alternative or a high-risk entice. Parex operates its manufacturing belongings in Colombia, which provides it the benefit of promoting its oil based mostly on the superior Brent Crude benchmark, typically fetching greater costs than North American indexes. Nonetheless, this high-yield vitality inventory additionally faces vital challenges, primarily stemming from manufacturing points in a weakening oil market.
The manufacturing drawback at Parex Assets
An 8% yield typically implies danger, and for Parex, the first concern has been its manufacturing volumes. The corporate’s output has declined for 3 consecutive years, which is a worrying development for any vitality producer. In 2024, common manufacturing fell 8% in comparison with 2023, and this stoop continued into 2025. Third-quarter 2025 manufacturing of 43,953 barrels of oil equal per day (boe/d) was down roughly 8% from the identical interval final yr.
This decrease productiveness, mixed with a softer worth surroundings, instantly hit the highest line. Quarterly working income within the third quarter of 2025 was down 13.3% yr over yr. For Parex to stay a secure dividend inventory, it should display a transparent path again to sustainable manufacturing progress.
A glimmer of hope?
Latest quarterly outcomes supplied a glimmer of hope. Whereas the year-over-year numbers look weak, Parex confirmed sequential manufacturing progress as third-quarter manufacturing elevated by 3% in comparison with the second quarter of 2025. Even higher, the corporate reported a surge in month-to-month common manufacturing to 49,300 boe/d in October. Administration is assured within the turnaround and expects common manufacturing within the fourth quarter of 2025 to exceed the excessive finish of its annual steerage.
Buyers will need to see this newfound momentum carry into 2026 to substantiate the manufacturing points are really previously.
How secure is Parex Assets’s 8.3% dividend?
Dividend sustainability is crucial query for earnings buyers. Parex’s common quarterly dividend has grown quickly, tripling from its 2021 ranges. To verify its security, we should take a look at free money circulation, which is the money an organization generates from operations after paying for its capital expenditures. That is the cash out there to pay dividends and repurchase shares.
In the course of the first 9 months of 2025, Parex generated US$106,358,000 in free money circulation and paid out US$80,818,000 in dividends. This leads to a dividend payout ratio of round 75%. It is a wholesome and sustainable stage, which means the dividend was effectively lined by internally generated money.
The truth is, the corporate had sufficient money left over to repurchase 1.8 million of its personal shares this yr.
To additional defend this money circulation, Parex entered a hedge on a couple of quarter of its deliberate fourth-quarter manufacturing, serving to to stabilize revenues even when oil costs weaken. Steady money circulation is the cornerstone of dividend security.
A brand new acquisition wildcard
Whereas the dividend appears safe based mostly on present numbers, Parex has launched a brand new variable. The corporate is on the hunt, asserting an aggressive, all-cash proposal to accumulate one other Colombian crude producer, GeoPark, in a deal valued at over US$940 million. After GeoPark’s administration rejected the provide, Parex acquired an 11.8% stake within the firm to attempt to power a shareholder vote.
This transfer could possibly be a game-changer, but it surely additionally presents a brand new danger. Such a big, all-cash deal may threaten Parex’s pristine steadiness sheet. The corporate has labored onerous to cut back its financial institution debt to only US$10 million, and buyers should now query if this potential acquisition will add vital leverage and shift the corporate’s focus away from shareholder returns within the close to time period.
Investor takeaway
Parex Assets inventory presents an advanced dividend security image. Its 8.3% dividend yield is undeniably enticing and, for now, seems well-covered by free money circulation. The long-term manufacturing decline has been the most important purple flag, however current month-to-month knowledge suggests a powerful operational turnaround could also be underway.
This high-yield dividend inventory is for earnings buyers who imagine the manufacturing rebound is actual, greater oil costs will maintain for longer, and that administration can full its acquisition with out damaging its wholesome steadiness sheet.
