Why Cenovus Energy Inc. Still Has a Better Dividend Than Crescent Point Energy Corp.

Crescent Point Energy Corp. (TSX:CPG)(NYSE:CGP) now has a dividend yielding nearly 8%. But you should go with Cenovus Energy Inc. (TSX:CVE)(NYSE:CVE) instead.

| More on:
The Motley Fool

If you’re looking for big dividends, then Canada’s energy sector offers plenty of tempting choices. And with stock prices declining so rapidly in the sector, these big yields have gotten even bigger.

Take Crescent Point Energy Corp (TSX: CPG)(NYSE: CPG) as an example. The company is well-known for its big payout, and thanks to a share price decline – more than 25% since late June – the dividend now yields 7.8%. Very tempting indeed.

But there are still much better dividends in the energy patch, and Cenovus Energy Inc. (TSX: CVE)(NYSE: CVE) is one of them. Below we show you why.

The problem with Crescent Point’s dividend

The main problem with Crescent Point’s dividend is very simple: it exceeds what the company makes. For example, last quarter the company made $0.24 per share in net income. That’s not enough to cover the $0.23 per month dividend.

To make up the difference, Crescent Point incentivizes its shareholders – via a 5% discount – to take their dividends in shares rather than cash. As a result, the share count increases constantly, diluting your stake in the company. Through the first six months of 2014, the number of shares outstanding increased by 6.5%.

That’s quite an increase for a six month period. And now that its share price is down, the company will need to issue even more shares to cover the same dividend. It’s a snowball effect that you should simply stay away from.

Why Cenovus’s dividend is better

At first glance, Cenovus’s dividend seems much less attractive, yielding just over 4%. But it’s still a better option than Crescent Point.

Again, the reason is very simple: Cenovus pays out a very affordable dividend. As a result, the company doesn’t need to issue new shares. From 2009 to 2013, the share count increased by 0.2% per year. Over at Crescent Point, that figure is 25%.

Better yet, Cenovus is one of the low cost oil producers in Western Canada. In fact BMO has rated Cenovus’s Foster Creek project as the low cost oil sands project in the oil sands. This means that your dividend is very safe, even if oil prices slide. And given where oil prices are today, this low-cost advantage is very relevant.

There’s a moral to this story: if you see a dividend that looks too good to be true, then it probably is. You can find all sorts of these “opportunities” in the energy sector, but your best bet is to stay away.

There’s another reliable dividend-payer in the energy sector you should buy instead of Crescent Point. It’s also The Motley Fool’s top stock pick for 2014. You can read all about it in the free report below.

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 Dividend Stocks

Businessmen teamwork brainstorming meeting.
Dividend Stocks

1 Magnificent Dividend Stock Down 15% to Buy and Hold Forever

Enbridge is off the 12-month lows but still trades at a large discount to its 2022 high.

Read more »

Increasing yield
Dividend Stocks

My Top 5 Ultra-High-Yield Dividend Stocks to Buy in May

If you’re looking to build a passive-income stream, these five dividend stocks should be on your radar.

Read more »

Payday ringed on a calendar
Dividend Stocks

A 10.6% Dividend Stock That Provides Monthly Cash Payments

A dividend stock with a mouth-watering yield providing monthly cash flow streams.

Read more »

Dividend Stocks

The Top Canadian REITs to Buy in May 2024

These three REITs have envious growth potential and trade cheaply today, making them three of the top Canadian stocks to…

Read more »

Young woman sat at laptop by a window

Why I Can’t Stop Buying Shares of This Magnificent High-Yield Stock in My Retirement Account

This utility is an excellent retirement stock, providing juicy income, income growth, and wealth creation for the long haul!

Read more »

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

Passive Income: How Much to Invest to Earn $1,000 Each Year

If you want the right passive-income producer, you want historical performance and future growth, and this dividend stock provides exactly…

Read more »

Cogs turning against each other
Dividend Stocks

1 Magnificent TSX Dividend Stock Down 9% to Buy and Hold Forever

A high-yield TSX dividend stock is a buying opportunity for long-term investors.

Read more »

money cash dividends
Dividend Stocks

2 Under-$10 Dividend Stocks I’d Buy Right Now

Here's why low-cost dividend stocks such as Decisive Dividend should be part of your shopping list in 2024.

Read more »