This TSX Dividend Yield Looks Almost Too Good: Here’s What the Numbers Actually Show

A double-digit dividend yield is hard to ignore, but it can also make investors cautious. Sometimes the market is warning you about a weak business. Other times, the yield looks unusually high because investors are still pricing the stock cautiously even as its fundamental outlook improves.

In this article, I’ll highlight one TSX dividend stock with an eye-catching yield. The key question is whether the company has the cash flow, balance-sheet strength, and project pipeline to support that payout. Based on the fundamentals, the answer looks like yes.

Why the yield is getting attention

The stock I’m talking about is Meren Energy (TSX:MER), an upstream oil and gas company with offshore exposure in Nigeria, Namibia, Equatorial Guinea, and South Africa.

After jumping by nearly 24% over the last year, MER stock currently trades at $2.05 per share with a market cap of about $1.4 billion. Despite the recent rally, the stock still sits about 20% below its 52-week high. That helps explain its dividend yield of around 10.3%. This is because the dividend yield moves inversely with the share price, so a stock trading below its recent high could still offer an elevated payout even after a strong rebound.

That kind of yield naturally makes investors cautious. But Meren’s investment case is supported by interests in high-value offshore fields, partnerships with major operators, and financial flexibility. Those strengths are worth considering when deciding whether its double-digit yield is an opportunity or a trap.

Strong financials support dividends

In the first quarter of 2026, Meren declared a second-quarter dividend of US$25.1 million, or US$0.04 per share, bringing its year-to-date distributions to US$50.2 million. That payout was backed by its average daily working-interest production of 28,400 barrels of oil equivalent per day (boepd) and entitlement production of 31,000 boepd. Its unit operating costs also held steady at US$14.60 per barrel of oil equivalent.

Although the company’s headline earnings line looked messier, the detail matters. Notably, Meren generated earnings before interest, taxes, depreciation, amortization, and exploration expenses (EBITDAX) of US$100.2 million in the first quarter and cash flow from operations before working capital of US$79 million. A non-cash hedging charge of US$37.2 million pushed it to a net loss of US$42.2 million, while its adjusted net loss was US$13 million. That is far less worrying than the headline earnings loss alone suggests.

More importantly, Meren’s balance sheet still looks healthy. The company recently refinanced its reserve-based lending facility, increased commitments to US$600 million, extended the maturity out to 2032, and ended the latest quarter with US$161.6 million in cash. Its net debt stood at US$208.4 million, leaving the company with a net debt-to-EBITDAX ratio of only 0.5 times.

The longer-term growth story is still intact

Beyond payouts, Meren is continuing to make efforts to accelerate its growth further.

In Nigeria, the company is moving toward restarting drilling and intervention work across Akpo and Egina, with the Akpo Far East well expected to be the first campaign target. That prospect alone carries an unrisked best-estimate gross resource of 143.6 million barrels of oil equivalent, or 23 million barrels net to Meren’s 16% working interest. In Namibia, the Venus development remains another source of upside, where Meren holds an indirect 3.8% interest through Impact Oil & Gas.

Given all these positive factors, Meren still looks like a great TSX dividend stock to invest in right now. Investors are being paid generously while they wait for more drilling activity and more value to surface from its offshore portfolio.

The post This TSX Dividend Yield Looks Almost Too Good: Here’s What the Numbers Actually Show appeared first on The Motley Fool Canada.

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Fool contributor Jitendra Parashar has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.