Dividend Investors: 3 Reasons to Buy Cenovus Energy Inc. Today

Cenovus Energy Inc. (TSX:CVE)(NYSE:CVE) has addressed the balance sheet problem, and one analyst thinks 2015 cash flows could come in better than expected.

| More on:
The Motley Fool

Cenovus Energy Inc. (TSX:CVE)(NYSE:CVE) is off more than 30% in the past six months and oil prices continue to drill down to new multi-year lows. Most oil stocks look like falling knives right now, but there are a few names in the sector that could be poised for a solid rebound.

Here are the reasons why I think dividend investors should consider putting Cenovus on their watch lists.

1. Balance sheet stability

Cenovus Energy Inc. has slashed spending and raised capital to shore up its balance sheet amid the ongoing rout in the oil market.

The company recently closed a bought deal to issue $1.5 billion in new stock. The funds will be used to help fill the gap between expected cash flow and the company’s roughly $2 billion capital-spending plan. Cenovus also has $3 billion available in an undrawn credit facility.

2. Better-than-expected cash flow

Analysts have been concerned that the cash flow challenges might force the company to cut or eliminate its dividend. Cenovus continues to pay its quarterly distribution of $0.27 that currently yields more than 5%.

TD Securities analyst Menno Hulshof has crunched the numbers and believes the refining division could deliver better-than-expected results this year.

Cenovus is an integrated energy company with both oil sands production assets and a large refining division. Margins in the company’s refining business are affected by the price differential between crude oil and the petroleum products that are extracted from it. This price difference is referred to as the “crack spread.”

Cenovus provided refining cash flow guidance for 2015 of $250 million based on an expected crack spread of US$11.75 per barrel. The differential has widened since the start of the year and Hulshof suggests that Cenovus could see better cash flow as a result.

This would alleviate some of the funding pressures and help protect the dividend.

3. Great assets

Cenovus operates two world-class oil sands facilities in a 50% joint partnership with ConocoPhillips. The projects, named Christina Lake and Foster Creek, have the potential to deliver substantial cash flow for decades.

Christina Lake increased output by 40% in 2014 to reach average production of about 69,000 barrels per day (bbls/d) net to Cenovus. Foster Creek provided Cenovus with more than 59,000 bbls/d, an 11% increase over 2013.

Each project has a target gross output of about 300,000 bbls/d.

Cenovus has also considered spinning off its royalty land assets to boost the capital position, but the company will probably wait until crude markets stabilize.

Oil prices are still volatile. Production continues to outpace demand and North American storage facilities are filling up fast. If you believe prices are headed higher by the end of the year, Cenovus might be a good way to pick up some nice dividends while you wait for the rebound. There are still risks, but the company is in better shape now than it was two months ago.

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

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »