Crescent Point Energy Corp. (TSX: CPG)(NYSE: CPG) is a popular holding among income investors but the recent pullback in oil prices and the subsequent 18% drop in the stock price is causing some shareholders to review their position.
Let’s take a look at Crescent Point to see if now is a good time to buy, hold, or sell the stock.
Crescent Point just reported average production of 141,183 barrels of oil equivalent per day (boe/d) for Q3 2014, a new record. The 9% year-over-year quarterly growth in production per share is attributable to successful drilling on its resource-rich properties as well as added output from recent acquisitions.
The company confirmed its 2014 guidance of 140,000 boe/d.
Crescent Point consistently delivers positive results on the production side through strategic purchases and efficient exploration programs. In 2014, the company has spent nearly $2 billion on acquisitions and another $2 billion on capital projects. In the third quarter, Crescent Point drilled 256 new wells with a 100% success rate.
On November 7, Crescent Point’s CEO, Scott Saxberg, told analysts that he expects 2015 capital expenditures to be slightly lower than 2014, given the current weakness in the oil market.
This is a positive sign for investors, because the company is comfortable maintaining a strong capital plan to drive growth despite the tough conditions in the market.
Saxberg also said he is looking to take advantage of opportunities to add assets in both Saskatchewan and Utah where the company already has a significant presence.
Strong earnings and solid balance sheet
Crescent point delivered a 10% increase in year-over-year Q3 earnings, despite the challenging environment for oil producers. Funds flow from operations increased by 12% in the quarter, even though the company reported lower realized oil prices.
The company has about 70,000 barrels per day of rail transport capacity that enables it to send crude to higher-priced markets. This helped contribute to the Q3 average netback of $54.24 per boe.
The balance sheet remains in good shape. The projected net debt to cash flow for 2014 is 1.1 times. This is consistent with the company’s 10-year historical average.
Despite the tough conditions in the oil market, Crescent Point is maintaining its monthly dividend of 23 cents per share. On an annualized basis, the payout of $2.76 yields about 7.7%.
Crescent Point uses a disciplined hedging program to protect cash flow, allowing the company to continue paying its dividend while pursuing growth strategies. The company has never cut the dividend.
Should you buy?
At current prices, the dividend should be safe. If oil drops below $70 per barrel for an extended period of time, the company might be forced to trim the distribution. If you think oil prices will stabilize near current levels, the stock is probably a good bet right now.
Crescent Point’s yield is certainly attractive, but some investors prefer a bit less volatility in their holdings. The report below analyzes one top stock that offers both low volatility and a track record of reliable dividend growth.
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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.