By Ahmed Ishtiaq
Canadian energy companies are some of the best dividend payers in the market. In fact, the top three dividend paying stocks in the Canadian stock market are related to the energy sector. Although the oil and gas sector has suffered recently due to weak commodity prices, dividends for these stocks remain attractive. We decided to pick three companies from Canada with dividend yields above 6% along with solid operations. We have chosen Penn West Petroleum Ltd (PWE), Enerplus Corporation (ERF) and Canadian Oil Sands Ltd (COSWF.OB).
We believe these companies can prove to be attractive additions to a range of income portfolios. All of the figures mentioned in the article are in Canadian dollars. At the moment, the exchange rate between U.S. dollar and Canadian Dollar is 1.0076 dollars for one Canadian dollar. As a result, all the figures reported in the Canadian dollars will be marginally higher when converted to the U.S. dollars.
Penn West Petroleum:
Penn West Petroleum is an independent energy company based in Calgary, Alberta. The company mainly focuses on the exploration and production of oil and natural gas in Saskatchewan, Alberta, and British Columbia. Penn West is more focused towards oil and at the end of the last year; it produced 63% of its total production in oil and 37% in natural gas. The company has shown remarkable growth in revenues over the past four years. At the end of 2011, Penn West reported revenues of $3.6 billion, showing year-over-year growth of 18%. However, during for the trailing twelve months, revenues have come down slightly for the company. Trailing twelve months revenue stands at $3.356 billion.
Due to more reliance on liquids, Penn West has not been exposed heavily to depressed natural gas prices like its peers. In addition, the company has incredibly strong cash flow. The operating cash flow to revenue ratio for the trailing twelve months stands at 0.37. In the last twelve months, the company has paid $398 million in cash dividends. At the moment, the company pays an annual dividend of $1.08, yielding 9.93%.
Enerplus Corp. is an energy company with a diversified asset base of oil and gas properties across a variety of resource plays. The company owns oil and gas properties in both U.S. and Canada. Enerplus operations include Crude Oil Waterfloods, Tight oil, Marcellus Shale Gas, Liquids Rich Natural Gas. The company is growing land position in the Deep Basin and liquids rich gas regions of British Columbia and Alberta. Enerplus has shown solid growth over the past three years but has suffered due to the depressed natural gas prices in the current year. As a result of weak commodity prices, the company had to cuts its dividends in half. Still, it remains one of the highest yielding stocks in the market. Currently, the company pays a monthly cash dividend of $0.09, yielding 7.88%.
As a result of weak operations, the company's cash flow has suffered a little over the past two years. Enerplus anticipated slow growth and reduced the dividends. A decrease in capital spending will augment free cash flow. As a result, the company will have more cash to cover its dividend payments. At the moment, the payout for Enerplus stands at 159%. In the most recent earnings announcement, Enerplus made it clear that, despite slow growth, the company expects to maintain its dividend.
Canadian Oil Sands:
Canadian Oil Sands (COSWF.OB) is the largest pure-play oil sands company, producing approximately 110,000 barrels per day of high-quality synthetic crude oil through its 36.74% interest in the Syncrude JV. The JV is the second-largest oil sands mining and upgrading project, with a capacity of 375,000 barrels a day and plans to increase production to 600 mbpd after 2020. The company has shown remarkable growth in revenues over the past three years. Trailing twelve months revenue for the company stands just below $4 billion.
In addition, the cash flow for Canadian Oil Sands is very solid. The company generated just under $1.6 billion in cash flow from operations in the last twelve months and paid $631 million in cash dividends. For the same period, the company spent $992 million in capital expenditures and reported free cash flow of $592 million. At the moment, COS pays an annual dividend of $1.40, yielding 6.8%. The company presents an attractive dividend yield. However, it should be kept in mind, that most of the production of the company is unhedged. As a result, the company is exposed to fluctuations in the commodity prices.
The oil and gas sector have been under pressure due to weak global demand and slow economic growth. In addition to slow economic growth, increased production from unconventional plays caused the oil and gas prices to go down. However, natural gas and oil prices are on the road to recovery and increased economic activity from Asia should augment the recovery process. The situation in Europe, however, will remain gloomy for a while. Nonetheless, these companies should be able to maintain current dividends.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.