EnCana: Go North To Pick Up This High Dividend Stock

Jan.14.12 | About: Encana Corporation (ECA)

Dividend stocks have had a very nice run over the last three to four months. On the down side, it is now getting much harder to find good yield at reasonable valuations. One stock I do still like here for its valuation, dividend and long term growth prospects is EnCana (NYSE:ECA). After Merrill's downgrade of the firm Thursday, it might be a good candidate to buy on the dip.

"EnCana Corporation engages in the exploration for, development, production, and marketing of natural gas and natural gas liquids primarily in Canada and the United States. The company owns interests in Canadian natural gas resource plays that primarily include the Greater Sierra, Cutbank Ridge, Bighorn, and Coalbed Methane resource plays located in British Columbia and Alberta". (Business description from Yahoo Finance)

7 reasons EnCana is undervalued at $18 a share:

  • The stock yields a juicy 4.3% percent and has raised its dividend payout an average of 14% annually over the last five years.
  • The stock looks like it has built technical support at current price levels (see chart)

    Click to enlarge

  • Although natural gas prices are hitting new lows, 60% of EnCana's 2012 production is hedged at $5.80/mmbtu level
  • EnCana's market capitalization is about 3.5 times its trailing 12 month operating cash flow.
  • Very few industries or stocks will benefit more by a change in administration than this company. If Romney looks like he will win in November look for this stock to move up significantly as sentiment improves on the sector.
  • ECA has crushed earnings estimates the last two quarters and consensus estimates for FY2011 and FY2012 have stabilized over the last month.
  • The median analysts' price target is some 30% above current price levels at $24 a share. Credit Suisse has a $27 price target and an "outperform" rating on EnCana as well.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.