Tag Archives: NYSE:CNQ

Increase Your Dividend Yield By Recognizing Dividend Stock Valuation

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Too many investors ignore stock valuation when they purchase dividend stocks for income. There’s a tradeoff. They simplify the investing process by averaging into quality businesses but risk having a higher average cost for their dividend investment. Consequently, a higher cost leads to a lower initial dividend yield (and lower subsequent yield on cost when the dividend stocks increase their dividends).

How do you tell a dividend stock’s valuation?

Some investors do not know how to value dividend stocks. Understandably, there isn’t a clear-cut formula to determine if dividend stocks are undervalued, fairly valued, or overvalued. Too many factors come into play, including the stability of the business’s earnings or cash flow, the historical valuation, the growth rate in the future, the safety of the dividend, etc.

Fortis stock's fair value range by Yahoo Finance in November 2021
Source: Yahoo Finance – Fortis stock’s fair value range

If you’re not sure about how to determine if a stock is cheap or not, use the analyst consensus price target as a guide. Although sometimes there are big changes for these price targets after an earnings report, it’s still better than ignoring the valuation factor altogether.

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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).

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Launching the Canadian Buy the Dips Portfolio: Identifying the Leading Energy Companies – Part 1

Summary

  • The Canadian Dollar is much weaker than the US Dollar from a year ago.
  • As a result, some Canadians may want to invest in Canadian stocks instead of US stocks for now.
  • The main strategy of this portfolio is to buy leading companies after some form of pullback.
  • 2 Canadian leading Energy companies can be bought with at least 31% and 38% potential gain in 2 to 3 years, not including dividends.

Why I’m Launching the Canadian Buy the Dips Portfolio

With more than $1.14 Canadian Dollar needed to convert to $1 U.S. Dollar (not to talk about added conversion fees), do-it-yourself Canadian investors may want to stay in their domestic currency and invest in Canadian companies instead of US ones. A reader asked me how to build a Canadian stock portfolio that is conservative and have the goal of income and steady growth. One strategy is to buy companies in a specific sector which has pulled back. A classic of buying low and possibly selling high. I say “possibly” because it might be wiser to buy low and sell high in certain sectors or companies more than others.

To remain conservative though, let’s first identify leaders in their respective sectors and industries. One way of doing this is finding the companies with the largest market capitalization in a particular sector. They are able to grow big (relative to their peers) because they are doing something right. These companies generally have more solid balance sheets and pay a growing dividend.

A Couple of Canadian Leaders in the Energy Sector

A stock portfolio can only be built one company at a time. The Energy companies have pulled back with the oil price decline. This fits the pull back criterion. Let’s take a look at some of the Canadian leaders in the Energy sector. They are Suncor Energy Inc. (TSX:SU)(NYSE:SU), and Canadian Natural Resources Ltd (TSX:CNQ)(NYSE:SU). They are the companies with the largest market capitalization in their respective industries.

Industry Leaders *Market Cap S&P Credit Rating *Yield
Integrated Oil and Gas Suncor Energy 52.4B A- 3.1%
Oil and Gas E&P Canadian Natural Resources 41.4B BBB+ 2.4%

* As of the close of Nov 28, 2014 on the TSX

Introducing Suncor Energy

Suncor logo

Suncor Energy is Canada’s largest integrated energy company, having a balanced portfolio of high quality assets. Its oil sands business is located in Alberta, Canada having 6.9B barrels of reserves and 23.5B barrels of contingent resources. Suncor estimates to have a compounded annual growth rate of 10 to 12% in oil sands and 7 to 8% overall until 2020. Suncor has been publicly traded since 1992. Since its high of $46 in June 2014, Suncor Energy has dropped to $36, a 21.7% decline.

SU Chart

SU data by YCharts

Even as the oil price dropped like a rock in the financial crisis, Suncor maintained its dividend. In fact, since 2011, it has increased it from $0.10 per share to its current $0.28 per share, a 180% increase. Its current yield is sitting around 3.1%, which is higher than the index’s (TSX:XIU) 2.34%.

Currently, this industry leader can be bought around $36. Rated 4-star by Morningstar, it is undervalued with a fair value estimate of $50, which is a potential 38% gain. Read More