ASX Dividend Stocks: A 20-30% yielder (that's not a dividend trap)

I'm on a mission to uncover some of the ASX's most compelling dividend-paying stocks. The aim is to provide readers with the key data and forecasts to make more informed decisions. Today, we're reviewing Cue Energy – a microcap oil and gas producer and exploration company.

Cue Energy (ASX: CUE) has production assets across Australia, Indonesia and New Zealand. In most cases, the company holds a minority interest in these projects, with producing sharing contracts in place.

Key Stats

• Market cap: $73 million

• Cash: $17.1 million (as at 31 December 2024)

• Enterprise value: $55.9 million

• 12-month performance: 66.6%

• 12-month price range: 6.3 cents - 12 cents

Major Projects

Australia:

• Mereenie (7.5% interest): Gas field in the Northern Territory

• Palm Valley (15% interest): Gas field in the Northern Territory

• Dingo (15% interest): Gas field in the Northern Territory

Indonesia:

• Mahato PSC: The PB field in this Production Sharing Contract is a significant contributor to Cue's results, generating $19.7 million in revenue in 2024

• Sampang PSC (15% interest): Includes two producing fields, Oyong and Wortel gas fields, and a gas discovery at Paus Biru

New Zealand:

• PMP 38160 (Maari/Manaia): Oil production from these fields averaged approximately 4,900 barrels of oil per day over the 2024 financial year

What Makes Cue Interesting

Cue has been profitable for the past four years, though its share price remained largely flat between December 2020 and January 2024. It wasn’t until its half-year FY24 result (29 February 2024) that the stock experienced a significant re-rate. That report highlighted:

• Revenue up 22% to $29.3 million

• Net profit after tax up 34% to $9.1 million

• Rapidly repaid $4 million in debt, now debt-free

• Issued special dividend of 2 cents per share (a yield of approximately 17%)

• Activities planned for all assets over the next 12 months to increase production from existing oil and gas fields

Cue returned $14 million to shareholders through a special dividend, representing a payout ratio of 100% of first-half net profits, plus an additional $4.9 million from cash reserves. The strong financial performance and dividend announcement sent the stock soaring by 49% on the day.

Six months later, Cue’s FY24 result included a final dividend of 1 cent per share (yield of approximately 10%).

Despite recent volatility in oil and gas prices, Cue continues to report solid cash flows. The latest December quarter report revealed:

• Net cash flow of $4.3 million

• Cash balance of $17.1 million

• No debt

• Total production of 146.4kboe (1Q25: 147.3kboe)

• Development activity fully funded

What's Next

Cue has not outlined a formal capital management strategy, and its latest quarterly report provided only a broad outlook.

“These milestones reflect our strategic focus on maintaining strong cash flow, advancing development projects, and positioning Cue for continued growth and shareholder returns,” said CEO Matthew Boyall.

Despite this, 2024 marked a clear shift in the company’s strategic priorities, with the introduction of a significant dividend payout for shareholders. Cue is expected to clarify its dividend intentions at its upcoming half-year result in February.

Cue is generating strong cash flow, growing production, and fully funding its development activities. The December quarter alone delivered a free cash flow yield of approximately 5.8%.

A key risk to future capital returns is if Cue prioritises growth over shareholder returns. This could come in the form of M&A, increased investment in existing projects, or higher capital expenditures.