Should You Buy Baytex Energy Corp. for Its 6.7% Yield Today?

Baytex Energy Corp.’s (TSX:BTE)(NYSE:BTE) stock has fallen over 2% since it released fourth-quarter earnings on March 5. Is now the time to buy?

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Baytex Energy Corp. (TSX:BTE)(NYSE:BTE), one of the largest crude oil and natural gas producers in North America, announced fourth-quarter earnings before the market opened on March 5, and its stock has responded by falling over 2% in the trading sessions since. The company’s stock now sits more than 63% below its 52-week high, so let’s take a closer look at the results to determine if we should consider initiating long-term positions today, or if we should look elsewhere for an investment opportunity instead.

Breaking down the fourth-quarter results

In the fourth quarter of fiscal 2014, Baytex reported a net loss of $316.82 million, or $2.16 per diluted share, compared to a net profit of $31.17 million, or $0.25 per diluted share, in the same quarter a year ago, as its petroleum and natural gas sales increased 47.1% to $472.39 million. These results were driven by its acquisition of 22,200 net acres of land in the Eagle Ford shale for approximately $2.8 billion in June of 2014, which led to its daily production increasing 53.2% to 92,220 barrels of oil equivalents per day in the fourth quarter compared to the year-ago period.

Here’s a quick breakdown of eight other notable statistics from the report compared to the year-ago period:

  1. Daily production of heavy oil decreased 0.3% to 43,135 barrels per day
  2. Daily production of light oil and condensate increased 346.6% to 26,916 barrels per day
  3. Daily production of natural gas liquids (NGL) increased 300.9% to 8,098 barrels per day
  4. Daily production of natural gas increased 100.9% to 84.43 million cubic feet per day
  5. Funds from operations increased 66.4% to $245.51 million
  6. Funds from operations increased 24.6% to $1.47 per share
  7. Capital expenditures increased 105% to $179.03 million
  8. Paid out dividends totaling $0.58 per share for a total cost of approximately $72.51 million during the quarter, compared to dividends totaling $0.66 per share for a total cost of approximately $59.53 million in the year-ago period

Is now the time to buy shares of Baytex?

I think the post-earnings weakness in Baytex’s stock represents an attractive long-term buying opportunity because it has a very high dividend yield, which I think is safe from reduction, and because I think the price of oil will rebound over the course of the year.

First, Baytex pays a monthly dividend of $0.10 per share, or $1.20 annually, which gives its stock a very high 6.7% yield at current levels. I also think this dividend is safe from being cut because the company generates ample funds from operations each quarter and year, including $245.51 million in the fourth quarter and $879.79 million in fiscal 2014. Funds from operations are a key measurement of performance for energy companies like Baytex because it demonstrates a company’s ability to generate the cash flow necessary to fund dividend payments and capital investments.

Second, I think the price of oil will head higher over the course of the year and end up around $80 per barrel, which will lead to investors piling in to energy stocks like Baytex.

With all of the information above in mind, I think Baytex Energy Corp. represents a great dividend investment opportunity today. Foolish investors should take a closer look and consider beginning to scale in to long-term positions.

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 Joseph Solitro has no position in any stocks mentioned.

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