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

Gold bullion on a chart
Dividend Stocks

TFSA Investors: Why You Should Invest Your Room ASAP With These 3 Stocks

Choosing the right TFSA stocks for your portfolio might take some time. But with the right choices, you can stick…

Read more »

Target. Stand out from the crowd
Dividend Stocks

Here’s the Next TSX Stock I’m Going to Buy

Innergex is a TSX stock that is growing its revenue and earnings at an enviable pace. It also pays investors…

Read more »

A worker uses a laptop inside a restaurant.
Dividend Stocks

Got $500? 2 Stocks to Buy and Hold for at Least 5 Years

Given their multi-year growth potential and attractive valuations, I am bullish on these two TSX stocks.

Read more »

A bull and bear face off.
Dividend Stocks

5 Dividend Stocks With Reliable Income in a Bearish Market

Canadian investors sweating out a potential bear market may want to target dividend stocks like Capital Power Corp. (TSX:CPX) and…

Read more »

A family watches tv using Roku at home.
Dividend Stocks

2 Streaming Stocks to Buy and 1 to Avoid Like the Plague

Two streaming stocks are good investment options, although the cheaper, high-yield Canadian dividend stock is a better buy than its…

Read more »

analyze data
Dividend Stocks

Telus Stock Rose 1% in November: Is it a Buy Today?

After a mostly flat November, is Telus one of the best stocks to buy in December, as we head into…

Read more »

money cash dividends
Dividend Stocks

How to Generate $500 in Passive Income Each Month

Instead of letting the stock market control your earnings, take control. Earn stable passive income with this strategy.

Read more »

Dividend Stocks

2 of the Best Stocks to Buy for Fast-Growing Passive Income 

In this economy, you need a passive income that grows fast enough to beat inflation in any situation. These two…

Read more »