Vermilion Energy Inc, A Mid-Cap Energy Stock Yielding 6%

Investors maybe staying away from energy stocks right now, especially the smaller ones. Who can blame them? Many have cut their dividends, including these mid-cap energy stocks: Bonavista Energy Corp (TSX:BNP), Enerplus Corp (TSX:ERF)(NYSE:ERF), and Baytex Energy Corp (TSX:BTE)(NYSE:BTE). In fact, Baytex announced in August that it was eliminating its dividend for the time being. Well, among these companies, there’s one that’s still maintaining its dividend thus far.

Vermilion Energy Inc (TSX:VET)(NYSE:VET) has never cut a dividend since 2003. If you’re looking for an opportunity for an oil price comeback, Vermilion Energy maybe a safer energy stock compared to its peers above.

Vermilion Energy remains a stable investment in the mid-core energy realm with its global asset diversification. Vermilion Energy’s global asset portfolio, in Europe, North America, and Australia, provides commodity diversification and premium pricing compared to asset portfolios solely located in North America. For example, Vermilion’s European Gas portfolio is projected to contribute 26% of its FFO, and European gas prices are 3 times higher than in North America.

Vermilion Energy’s Dividend Sustainability

At $43 per share, Vermilion Energy yields 6%. Can the international oil and gas producer sustain its dividend? Its trailing twelve months (TTM) operating cash flow was $621M. In the last 12 months, it paid out $281.2M of dividends. So, that equates to a payout ratio of 45.3%. Using the stricter metric of free cash flow (FCF), Vermilion’s payout ratio would be 50.8%. Read More

Top U.S. Energy Stocks to Buy in 2016. Start Earning Dividends.

After the oil price plummet, you may be looking to invest in the top energy stocks. I compared the recent business performance of 9 oil & gas integrated companies and 7 midstream companies, respectively. I focused my analysis on profitability and debt because those factors determine whether an energy stock will survive or even thrive in a prolonged low oil price environment.

The oil & gas integrated companies analyzed include Exxon Mobil Corporation (NYSE:XOM), Chevron Corporation (NYSE:CVX), and Suncor Energy (TSX:SU)(NYSE:SU), and the midstream companies analyzed include Kinder Morgan Inc (NYSE:KMI), Magellan Midstream Partners, L.P. (NYSE:MMP), and Enbridge Inc. Which are the safest energy stocks for long-term investing?

Safest Integrated Oil & Gas Stocks

From the integrated oil & gas stocks, Suncor Energy is a winner. It has low cost of operations, high operating margins, as well as a culture to increase dividends. Exxon Mobil and Chevron are also winners because they have relatively high operating margins and low debt levels that can only benefit them in the low oil price environment. Read More

Canadian Energy Stocks to Buy Now

After the oil price plummet, you may be looking to invest in the top Canadian energy stocks. Thinking of Suncor Energy Inc. (TSX:SU)(NYSE:SU), Enbridge Inc (TSX:ENB)(NYSE:ENB), or Inter Pipeline Ltd (TSX:IPL)? Well, among these, other common integrated oil & gas companies and midstream companies will be discussed.

Integrated oil & gas companies and the pipelines are the safer energy companies. Canadian energy stocks such as Suncor Energy Inc. (TSX:SU)(NYSE:SU) are integrated oil & gas that are involved with upstream and downstream operations. Because their businesses are multifaceted, their businesses are more stable than energy companies involved only in upstream businesses. Upstream operations include oil & gas exploration and production, while downstream operations include refinement, marketing, and distribution of the commodities.

The pipeline businesses generate stable cash flows by transporting and storing energy. Their services are mostly fee-based so their profitability are less affected by the oil price.

I put together a list of Canadian energy stocks that are integrated oil & gas companies or pipeline companies. They all turn out to be dividend stocks which help with portfolio returns because shareholders receive income even in a down market.

However, integrated oil & gas company dividends may not be reliable because the company profitability is based on the commodity prices. As we’ve seen in the past year, some energy companies had to slash their dividends. Cenovus Energy Inc (TSX:CVE)(NYSE:CVE) was one of them.

For the data analysis, I compared the energy stocks’ trailing twelve month (TTM) earnings per share (EPS) and operating cash flows from 2014’s. I’m also comparing the latest quarter’s debt-to-equity (D/E) to 2014’s. I will also include the D/E ratio. The above is checking the stocks’ profitability and debt levels in this low oil price environment.

The integrated oil and gas stock list includes Suncor Energy, Imperial Oil Limited (TSX:IMO)(NYSE:IMO), Husky Energy Inc. (TSX:HSE), and Cenovus Energy.

The oil and gas midstream list includes Enbridge Inc (TSX:ENB)(NYSE:ENB), TransCanada Corporation (TSX:TRP)(NYSE:TRP), Pembina Pipeline Corp (TSX:PPL)(NYSE:PBA), Inter Pipeline Ltd (TSX:IPL), and Keyera Corp (TSX:KEY).

Without further ado, let’s explore the integrated oil & gas Canadian energy stocks to see which one you should buy.

Which Integrated Oil and Gas Company Should You Buy?

Referring to Table 1 further down the page, Suncor Energy’s D/E increased 7% while its operating cash flow dropped by only 15%. Compared to its peers, it’s doing quite well. At the same time, its operating margin remains the highest among its peers.

It’s more reassuring to hold Suncor shares because it has a track record of increasing dividends. It has hiked dividends for 13 consecutive years. Further digging, and it turns out Suncor Energy is keeping operating cost low.In the first half of 2015, its operating cost per barrel was only $28.20. The oil price has remained above that, so that’s how the company remains profitable in this low oil price environment. Suncor Energy’s 5-year compounded annual growth rate for its dividend is over 20%, although its most recent dividend increase was only 3.6% to reflect the impact of the low oil price.

Imperial Oil is also a possible Canadian energy stock to buy as it maintains a relatively high operating margin of 10.5%. Coincidentally, that percentage is close to its 2009 low levels of 10.3%. Imperial Oil has impressively increased dividends for 20 years, although its dividend growth rate has been around 6% per year. Even though it only yields 1.3%, after a pullback of over 23% from its 52-week high, it could still be a decent investment. Investors can view Imperial Oil as a very conservative energy stock. It is awarded the highest S&P credit rating of AAA.

The operating margins of both Husky and Cenovus has dropped to below 4%. Particularly, Cenovus’ D/E is much higher than the others. Cenovus slashed its dividend in September 2015 by 40%. It probably did it to maintain a strong balance sheet, but it was bad news to income investors.

So, if I were to buy only one integrated oil and gas company, I would probably go with Suncor Energy, although Imperial Oil is not a bad choice if you’re a conservative investor.

Winner: Suncor Energy (or Imperial Oil for the more conservative investors)

Integrated Oil and Gas Stocks: Profitability and Debt Comparison

Company 1Market Cap 1Yield S&P Credit Ratings 2EPS change 2Op CFL change 2TTM Op Margin 3D/E Change 4D/E
Suncor $49.2B 3.4% A- -47.8% -15% 13.1% +6.7% 0.32
Imperial Oil $35.6B 1.3% AAA -43.1% -32.4% 10.5% +18.2% 0.26
Husky $20.9B 5.7% BBB+ -76.7% -12.8% 1.7% +22.7% 0.27
Cenovus $17B 3.1% BBB+ -186.7% -27.1% 3.5% -1.9% 0.53

Table 1: Integrated Oil and Gas Stocks Profitability and Debt Comparison
1 As of close of September 18, 2015
2 EPS change, Operating Cash Flow change, and Debt-to-Equity Change derived from Morningstar data on close of September 18, 2015
3 Latest quarter D/E compared to 2014’s
4 Latest quarter D/E

Read More

Berkshire Hathaway’s Most Undervalued Dividend Stalwarts

Both Procter & Gamble and International Business Machines are experiencing multi-year transformations. It is exactly for that reason that both are trading at historically high yields, and patient investors can start dollar-cost averaging into these dividend stalwarts with at least 20 years of dividend growth history.


On reviewing Berkshire Hathaway’s top 15 holdings listed in its 2014 letter to shareholders, I found out the two most undervalued companies are actually a couple of my core holdings. They are Procter & Gamble Co (NYSE:PG) and International Business Machines Corp (NYSE:IBM). They are cheap for a reason though. Both are experiencing multi-year transformations.

Procter & Gamble’s Transformation

Transformation is a slow process. Especially for a huge company such as P&G, it could take several years to unfold. Procter & Gamble intends to shed off roughly 100 non-core brands, over half of its existing brand portfolio, in an attempt to focus on its core brands, such as the 23 brands that generate over $1 billion in annual revenue.

For example, in July 2015, Procter & Gamble accepted an offer of $12.5 billion from Coty to merge 43 P&G products with Coty. This transaction is tax-efficient in nature, and P&G estimates the one-time gain to be from $5 to $7 billion depending on the final deal value when it closes.

Due to this transaction and the Duracell sale to Warren Buffett for around $4.7 billion, Procter & Gamble intends to return $70 billion to shareholders from fiscal year 2016 to 2019 in dividends and share retirement, while maintaining its current credit ratings.

You can learn more about the Coty transaction.

Procter & Gamble’s Valuation

In today’s market, it’s rare to find Morningstar rating a company 5 stars indicating extreme undervaluation. Well, Procter & Gamble gained that status.

Cross-checking with F.A.S.T. Graphs, Procter & Gamble is also undervalued based on the price-to-cash-flow ratio. The graph indicates the shares are at least 7% undervalued.

PG valuation graph

Procter & Gamble: A Dividend Stalwart of 59 Years

Around $70 per share, its yield of 3.77% is historically high for the company. The chart below shows the fiscal year-end yields, and the highest yield shown is 3.5%. Read More

Market Drama: More Pain Likely Coming, But No Need to Panic

Over the weekend, I wrote a couple of articles on How to Review Your Portfolio in a Falling Market. One of them specifically talked about reviewing and managing your dividend portfolio. I thought of writing these articles because indices had broken major supports last week.

However, the Monday action was still very hard to stomach…well, it would have been if you were awake when the market opened. Take a look at the charts below regarding iShares S&P/TSX 60 Index Fund (TSX:XIU), SPDR S&P 500 ETF Trust (NYSEARCA:SPY), and Dow Jones Industrial Average (INDEXDJX:.DJI).

The Dow fell as much as 1000 points when the market opened. At the end of the day, it recovered about half of the losses. This is even more drama than the most dramatic drama or movie.

XIU action

If an investor were cautious enough they would have loaded off some shares in mid August when death crosses formed in the different indices and stocks. If you didn’t, it maybe too late to do so now because you might have to sell at a loss. Read More

The Top Canadian Energy Dividend Company

We all know companies in the Energy sector are taking a beating due to the oil price plummet. Many energy companies pay a dividend. Yet, on one extreme some companies slashed their dividends, such as Cenovus Energy Inc (TSX:CVE)(NYSE:CVE) and on the other side of the extreme, there are some that have continued raising their dividends.

Here is the list of Energy companies that have not cut (some even raised) their dividends in the past year: Imperial Oil Limited (TSX:IMO)(NYSE:IMO), Suncor Energy Inc. (TSX:SU)(NYSE:SU), Canadian Natural Resources Limited (TSX:CNQ)(NYSE:CNQ), Enbridge Inc (TSX:ENB)(NYSE:ENB), TransCanada Corporation (TSX:TRP)(NYSE:TRP), Inter Pipeline Ltd (TSX:IPL), Pason Systems Inc. (TSX:PSI), and Ensign Energy Services Inc (TSX:ESI).

Read More

Oil Majors: The P/E Is Irrelevant In Determining Their Valuations


  • The oil majors’ P/E are so volatile that it should be used in evaluating the valuation of the oil majors with a grain of salt.
  • On the other hand, their book values per share are much more stable and so the P/B maybe a better metric to use.
  • The yield compared to historical yields may also be an indicator. High yield may imply good value.
  • After determining a dividend is safe, we just need to buy it on price dips.
  • And a price dip is happening right now. So, if the yield is attractive enough for you, consider easing into Exxon Mobil and or Chevron.

P/E is one of the first metrics that investors typically use to determine if a company is overvalued, fairly valued, or undervalued. However, I suspect that the P/E cannot be viewed the same way for oil majors.

Initially, I subconsciously observed that it’s a good time to buy oil majors when their P/Es are high relative to their historical P/Es. But looking at real data, it’s not as simple as that.

I looked at the P/E, P/B, price range, and yields of the past 10 years for Exxon Mobil Corporation (NYSE:XOM), Chevron Corporation (NYSE:CVX), and BP plc (NYSE:BP). From looking at these data, I strive to derive some conclusion from my observations.

Read More

Website Downtime

Well, this is a rare event. My webhost is closing down, so this website, Passive Income Earner, is being transferred to another host. I will try to make it as seamless as possible so that there’s little disruption. The transfer will take place over the weekend. Wish me luck!