Husky Energy Inc. (TSX:HSE) is reporting its second-quarter earnings results tomorrow. Should you buy it now? First, let’s take a look at Husky Energy’s business.

The business

Husky Energy is an integrated energy company, meaning it operates in the upstream and downstream businesses. The upstream segment includes exploring for, developing, and producing crude oil and natural gas. The downstream segment includes refining crude oil and marketing petroleum products.

Is Husky’s dividend safe?

At about $22 per share Husky Energy yields 5.4%. Unlike some energy companies that increased their dividends, Husky has frozen its quarterly dividend at $0.30 per share since 2009.

Further, in 2008 it paid a quarterly dividend as high as $0.50. That means it cut the dividend 40% during that time. In the low oil price environment, the payout ratio is now overextended at 150%, but other integrated oil companies are in similar situations.

Earnings and valuation

Husky Energy’s earnings are tied with the commodity price. So, the commodity price volatility translates to Husky Energy’s earnings volatility.

Year Earnings Growth
2012 -12%
2013 -10.2%
2014 -35.1%

Because earnings are so volatile, if I use the price-to-earnings ratio (P/E) to evaluate the company, that valuation can jump around a lot as the price of the commodity changes. So, instead of using the P/E, it might make more sense to use the price-to-book ratio (P/B). To elaborate, the P/B is comparing the market price to the value of the company’s underlying assets.

The company’s trailing 12-month P/B is 1.1, and it hasn’t traded at such a low level for the past decade. In this period, the lowest it has traded was at a P/B of 1.3 in 2014. Based on the P/B metric, Husky’s shares are priced at the lowest levels in the last decade.

Should Foolish Investors buy Husky today?

All integrated energy companies have been affected by low oil prices. The future oil price is uncertain. No one knows when it will eventually go up, increasing energy companies’ profitability along with it.

I’m not encouraging the timing of the market, but around earnings report time the market can get especially emotional about a company. Husky Energy could go up or down 5-7% in one day.

Either way, if you are bullish in the long-term usage of oil, I believe Foolish investors can find higher-quality integrated energy companies. High-quality peers include the ones that continued to increase their dividends in 2009 when Husky cut its dividend. Specifically, these peers include Suncor Energy Inc. and Imperial Oil Limited.

However, their yields are lower than Husky’s, so they might not meet income investors’ objective of a certain minimum yield such as 4%. Their lower yield further implies that they’re higher quality because the market isn’t pushing their prices lower for higher yields.

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Fool contributor Kay Ng owns shares of Suncor Energy, Inc. (USA).