1 Reason This 4% Yield Still Has Plenty of Room to Grow

Enerplus recently increased its Williston Basin drilling inventory by 127%.

| More on:
The Motley Fool

Enerplus (TSX: ERF)(NYSE: EFR) recently revealed that its North Dakota shale position is bigger than it originally thought. In fact, the company has discovered that there’s 50% more original oil in place than it assumed, which leads the company to believe that it will recover 250% more oil than expected. It’s one big reason why the company’s 4% dividend still has plenty of room to grow.

Visible growth

As an investor seeking yield, one of the ways to determine if that yield has staying power is to see visible growth prospects within the company’s business. In the case of Enerplus, that growth is pretty clear, as the company has increased the number of future wells it expects to drill from 145 to 329. That’s a 127% increase in the company’s future drilling locations.

Those future wells represent a pretty strong growth opportunity for the company. As of the end of last year, Enerplus had drilled only 99 total producing wells on its acreage in North Dakota. Until recently, the company expected that it could drill for another seven years as it more than doubled its future well count to nearly 250 wells.

However, Enerplus now sees over 425 total well locations within its acreage position. It’s this visible future growth that not only should enable the company’s dividend to continue flowing to investors, but also gives the company ample fuel for future growth despite the fact that the production from these wells declines rather quickly.

Growth matters, even for dividend investors

When exploring some of Canada’s top dividend-paying energy stocks, Enerplus is actually a laggard. Crescent Point Energy (TSX: CPG)(NYSE: CPG), for example, currently yields nearly 6%. Meanwhile, Penn West Petroleum (TSX: PWT)(NYSE: PWE) yields just over 5%. However, Enerplus’s dividend could eventually rival its peers as it has a growth platform that has become much more visible over the past year.

Meanwhile, Penn West’s growth picture is a bit cloudy at the moment, as it is still in the middle of selling off assets to focus on just three core plays. While it’s a solid turnaround plan, it lacks the clear upside that Enerplus’s shale-fueled plan contains.

Crescent Point Energy, on the other hand, has taken the opposite approach as its dividend is being fueled by its ability to acquire additional oil and gas properties. The company’s most recent deal helped strengthen its payout ratio by 2% while adding upside to future growth by boosting its drilling inventory. It’s visible upside like this that dividend investors want to see, and both Enerplus and Crescent Point Energy have it in spades.

Enerplus is realizing that the $600 million it spent to acquire its Bakken position was clearly money well spent. The company now expects to recover substantially more oil than it originally thought, which will enable it to grow its payout in the future. That’s just one reason why its 4% yield still has room to grow.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt DiLallo doesn’t own shares of any of the companies mentioned in this article.

More on Investing

A person builds a rock tower on a beach.
Dividend Stocks

CPP Pension: Boost Your Payouts by $5,232 per Year

You can raise your after-tax CPP by making RRSP contributions. Alimentation Couche-Tard (TSX:ATD) is a good RRSP stock.

Read more »

Overhead shot of young adults using technology at a table
Tech Stocks

1 Stock That’s Just as Hot as Tesla Stock  (Without All the Hype)

Sure, Tesla stock (NASDAQ:TSLA) has the headlines, but this other stock has far more growth, with even more on the…

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

3 No-Brainer Stocks to Buy With $20 Right Now

Here are three no-brainer stocks that are suitable for anyone getting started on their investing journey.

Read more »

thinking
Bank Stocks

Could Royal Bank Stock Reach $200?

Growing rate cut hopes and improving analysts’ expectations from Royal Bank’s financial results could help its stock maintain strong upward…

Read more »

A plant grows from coins.
Investing

3 Growth Stocks to Buy With $3,000 for the Next 3 Years

These growth stocks have the potential to deliver above-average returns and compound investors’ wealth.

Read more »

Young woman sat at laptop by a window
Investing

Here’s Why I Think Restaurant Brands Is 1 of the Best Bets on the TSX Today 

Here's why Restaurant Brands (TSX:QSR) could be one of the best stocks to buy for long-term upside in this current…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

This 5% Dividend Stock Pays Cash Every Month

This monthly dividend stock offers cash every month, but also returns that continue to climb higher from being in a…

Read more »

growing plant shoots on stacked coins
Dividend Stocks

3 Top Dividend Stocks That Keep Raising Their Payouts

These three TSX stocks are ideal buy as they consistently raise their payouts, depicting their healthy financials.

Read more »