3 Reasons to Buy Cenovus Energy Inc. Over Crescent Point Energy Corp.

Investors seem to love Crescent Point Energy Corp.’s (TSX:CPG)(NySE:CPG) big dividend. However, there are plenty of reasons to choose Cenovus Energy Inc. (TSX:CVE)(NYSE:CVE) instead.

| More on:
The Motley Fool

The past couple of years have been quite good for shareholders of Crescent Point Energy Corp (TSX: CPG)(NYSE: CPG). Since the beginning of 2013, its shares have gone up 17%, and that’s not including a very attractive dividend. The company seems to be firing on all cylinders.

Meanwhile, over the same time period, shares of Cenovus Energy Inc (TSX: CVE)(NYSE: CVE) have been virtually flat. Shareholders haven’t benefited from a lucrative dividend, either. Over this time, the company has run into some operational challenges, and investors seem to be getting tired of the issues.

That being said, there are reasons why you should consider buying Cenovus over Crescent Point. Below we take a look at three of them.

1. A bright future for heavy oil

If you look back to a year ago, nothing seemed to be going right for heavy oil producers in Alberta. These companies had to accept discounted prices for their product, and investors pushed stock prices down. However, since then, transportation bottlenecks have eased and prices have crept back up.

The best could be yet to come. More pipelines could be built in the future — depending on regulatory hurdles, of course — and the growth of crude transportation by rail continues to be a boon to these producers.

Cenovus stands to benefit more from these trends than Crescent Point does. While the former makes its money primarily from heavy oil in Alberta, Crescent Point focuses on lighter oils in Saskatchewan, Manitoba, and Utah. If you’re looking to make a bet on Albertan heavy oil, Cenovus is a better option than Crescent Point.

2. Attractive economics

In energy, it helps to be a low-cost producer. The reason is quite simple: If you’re producing at a lower cost than everyone else, that gives you more staying power during the down cycles. Among Canadian oil producers, Cenovus has some of the lowest-cost operations in the industry.

In fact, its Foster Creek operation has been cited as the lowest-cost heavy oil operation of its kind in all of Canada. Its operations at Christina Lake are also among the best.

3. A better approach to shareholders

Despite these things, the real reason to prefer Cenovus over Crescent Point is its approach to shareholders. The difference between the two companies is night and day.

Cenovus takes a fairly measured approach, with a modest dividend that the company can easily afford. To illustrate, the company pays out an annualized dividend of $1.06 per share, not too much compared to last year’s $4.67 per share in cash flow.

Meanwhile, Crescent Point is far more aggressive with its dividend, paying out $0.23 per share per month. This is an amount the company simply cannot afford to pay in cash, so it incentivizes shareholders to take their dividends in additional shares. Mostly as a result of this strategy, Crescent Point’s share count increased by over 30% from 2011 to 2013. In contrast, Cenovus’s share count has stayed virtually flat for years.

The verdict

Crescent Point is popular with a lot of investors because of its big dividend yield, which currently stands above 6%. Don’t be tempted, though — it’s more important to look beneath the dividend at company fundamentals, and there are few energy companies with better fundamentals than Cenovus.

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 Benjamin Sinclair has no position in any stocks mentioned.

More on Investing

edit Four girl friends withdrawing money from credit card at ATM
Bank Stocks

Should You Buy Canadian Bank Stocks in the Face of a Potential Recession?

Royal Bank of Canada (TSX:RY)(NYSE:RY) stock a is a great blue-chip name that investors should not hesitate to buy on…

Read more »

analyze data
Metals and Mining Stocks

3 Under-the-Radar Commodity Stocks to Buy

Three commodity stocks are likely to break out soon if inventories in metals markets continue to decline or demand outpaces…

Read more »

Oil pumps against sunset
Energy Stocks

Is it a Good Time to Buy in the Energy Sector?

Boosted by a very bullish supply/demand environment, energy stocks like Canadian Natural Resources and Tourmaline have much further to go.

Read more »

Investing

2 Stocks to Buy Offering Better Value Than Air Canada

Air Canada has been a popular stock for years, but despite its low price, these two picks are much better…

Read more »

money cash dividends
Investing

How to Make $373/Month in Passive Income With These 2 TSX Stocks

You could bring in passive income of $4,482 annually, or $373 per month!

Read more »

clock time
Stocks for Beginners

3 Stocks to Start Investing Today

Looking for a set of stocks to start investing today? Here are some great options that offer growth and income…

Read more »

investment research
Dividend Stocks

Young Investors: Create Cash Flow With This Top Dividend Stock

If you're a young investor looking for cash flow, you need a strong dividend stock and solid banking program designed…

Read more »

Illustration of bull and bear
Investing

Is the Stock Market Selloff Over?

Throughout this week, many stocks have been gaining value and rebounding from their lows. So, is the stock market selloff…

Read more »