Oil & gas minnow Soco International (LSE: SIA) has today announced a new production sharing agreement in offshore Vietnam, between it and PetroVietnam, SOVICO Holdings. The new deal will see Soco take on a 70% operated interest in two blocks, 125 & 126, located in moderate to deep water in the Phu Khanh Basin.
According to initial reports, both of these have “multiple structural and stratigraphic plays.” Interpretation of the existing data “indicates there is good potential for source, expulsion and migration of oil with numerous reservoir and seal intervals likely.” Soco is looking to further explore these prospects in the years ahead. Management is currently projecting that an exploration well could be drilled by 2021 if all goes to plan.
Steady growth via exploration
This is just the latest development in the history of Soco, a company that has produced huge returns for investors.
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Indeed, over the past few years, it has built a reputation for itself as one of the oil sector’s best income stocks. This year, analysts believe that the company will return 5p per share to investors, giving a dividend yield of 4.4%. However, next year analysts are currently projecting the payout to drop to 1p, giving a token yield of only 0.9%.
I believe that this forecast is overly pessimistic. Full-year production guidance has been maintained at 8,000 to 9,000 barrels a day, and pre-tax profit is expected to double this year. Moreover, the company’s oil sells at a premium to the Brent benchmark, indicating the quality of the offering. The firm’s production costs in Vietnam are less than $13 per barrel, which is right at the bottom of the cost curve and as oil prices increase, operational gearing should result in higher cash generation.
Put simply, it looks as if City forecasts are highly conservative and Soco will remain a top dividend stock for the foreseeable future.
One of a kind cash cow
As well as Soco, I’m positive on retailer Moss Bros (LSE: MOSB) for long-term income seekers.
Despite all the concerns about the demise of the high street, I believe that Moss Bros has what it takes to weather the storm. Buying and hiring formalwear, is a specialist business, and it’s just not possible to completely replicate the experience online. This means that the business is, to a certain extent, insulated from the likes of Amazon.
City analysts are also optimistic about the prospects for the firm’s growth in the years ahead as well. Earnings per share growth of 2% to 6% is pencilled in for the next two years.
The shares currently support a dividend yield of 6.2% and while this isn’t covered by earnings per share, the distribution is covered by cash generated from operations. For example, for 2017 total cash dividends paid out of £5.7m were easily covered by free cash flow from operations of £7.2m.
As Moss Bros’ sales and earnings continue to expand, it looks as if the payout will remain well covered and secure for the long term.
