4 Reasons Income Investors Should Buy Crescent Point Energy Corp. Right Now

Here’s why Crescent Point Energy Corp. (TSX:CPG)(NYSE:CPG) will probably hike its 6.5% dividend even higher.

| More on:

In this current environment of low interest rates, income investors are looking for reliable stocks with a history of paying consistent dividends.

Crescent Point Energy Corp. (TSX: CPG)(NYSE: CPG) fits the criteria perfectly and its generous dividend could be going higher.

Here are four reasons why I think dividend income investors should consider adding Crescent Point Energy Corp. to their portfolio.

1. Asset growth

Crescent Point Energy has been on an acquisition blitz in the past year, spending nearly $2 billion on new assets.

Here’s a look at three of the acquisitions:

On September 2, Crescent Point announced a $378 million deal to buy producing conventional oil assets in Manitoba and Saskatchewan from Lightstream Resources Ltd. The assets currently produce 3,300 barrels of oil per day and the deal includes 76 net sections of land located beside the existing wells. Crescent Point is using cash to pay for most of the deal.

The deal should add $51 million to free cash flow in the next 12 months.

In June, Crescent Point acquired the Saskatchewan Viking oil assets from Polar Star Canadian Oil and Gas Inc. for $331.7 million. The deal includes more than 2,800 barrels per day of high-netback production.

In May, Crescent Point paid $1.1 billion for CanEra Energy Corp. to boost its portfolio of premium assets in Saskatchewan’s Torquay region. Crescent Point paid 12.9 million shares, $192 million in cash, and took on $348 million in debt to pay for CanEra.

Crescent Point’s Torquay exposure now tops 960 net sections of land.

2. Organic production growth

Crescent Point Energy also has a robust capital program and is very successful at locating new reserves on its world-class land holdings, including its Torquay resource play in Saskatchewan and its Uinta Basin play in Utah.

Capital expenditures for 2014 across the entire asset base stand at $2 billion. “Accelerating capital allows us to increase the momentum we’ve generated so far in the Torquay play and in the Uinta Basin,” Crescent Point CEO Scott Scott Saxberg said in the recent update.

3. Proven business model

The investment community often comments that Crescent Point should be paying for acquisitions using free cash flow instead of equity and debt. The business model has been under scrutiny for years, yet Crescent Point’s management team continues to deliver results and has little trouble raising funds.

With the $2 billion in capital programs and the aggressive acquisitions completed this year, Saxberg expects to see a 16% increase in cash flow on a per-share basis in 2014.

The company’s balance sheet remains strong. Projected average net debt to 12-month cash flow sits around 1.1 times. Crescent Point also uses an aggressive hedging plan to ensure stable cash flow during volatile movements in the oil market.

4. Reliable dividend payments

Crescent Point has never cut its dividend. The company pays a monthly dividend of $0.23 per share, or $2.76 on an annualized basis. The distribution yields about 6.5%.

One complaint analysts have against Crescent Point is that the company’s dividend payout ratio is greater than 100%. The wisdom of Crescent Point’s strategy is certainly debatable. The company has done a good job in the past year of driving down the payout ratio while maintaining one of Canada’s best dividends.

In the Q2 2014 earnings report, Saxberg said, “With our 2014 cash flow estimated to be greater than six dollars per share and our payout ratio the lowest it’s been in company history, we’re well on track to delivering another excellent year to our shareholders.”

Saxberg told Bloomberg on September 9 that drilling success in Saskatchewan and the recent acquisitions have set the company up for a potential dividend increase next near.

The bottom line

Crescent Point Energy continues to grow production and free cash flow that investors can count on for reliable dividends. I think the recent weakness in the stock is a great opportunity for income investors to take a position.

If U.S. investors start to take notice, the stock could see a sharp breakout to the upside.

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 Andrew Walker has no position in any stocks mentioned.

More on Dividend Stocks

Double exposure of a businessman and stairs - Business Success Concept
Dividend Stocks

Better Buy: BCE Stock or Enbridge?

BCE and Enbridge pay growing dividends with high yields. Is one more attractive today?

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

2 Unstoppable Dividend Stocks to Load Up in Your TFSA

These two dividend stocks provide long-term passive income that comes out every month, thanks to lease agreements lasting over a…

Read more »

Gold bullion on a chart
Dividend Stocks

Everyone is Talking About Barrick Gold Stock: Should You Buy?

Barrick Gold stock has lost 32% since April, underperforming the yellow metal.

Read more »

funds, money, nest egg
Dividend Stocks

TFSA: Invest $25,000 and Get $241,157 + $136/Month in Passive Income

Here’s one of the best Canadian monthly dividend stocks that could help you earn passive income for decades to come.

Read more »

Canadian Dollars
Dividend Stocks

Earn $5,000/Year in Passive Income With These Top Canadian Stocks

Looking for an easy way to earn $5,000 in annual passive income? These three large-cap dividend stocks could help you…

Read more »

A plant grows from coins.
Dividend Stocks

3 Dividend-Growth Stocks That Could Surge up to 33% in 2023

Dividend stocks on the TSX, such as Brookfield Renewable Partners, have the potential to generate double-digit returns to investors in…

Read more »

TFSA and coins
Dividend Stocks

3 Smart Monthly Dividend Stocks to Buy for Tax-Free Passive Income in 2023

Top TSX stocks such as Pembina Pipeline pay investors a monthly dividend and can also deliver outsized gains in 2023.

Read more »

Increasing yield
Dividend Stocks

2 Ultra-High Dividend Stocks With Once-in-a-Decade Low Prices

Buying dividend stocks at decade-low prices can give you long-term passive income and capital growth. Don’t miss this opportunity.

Read more »