The oil price slump continues as the WTI crude oil price remains below US$60. It’s understandable why investors would want to stay away from energy companies. However, because of the harsh environment and the uncertainty, it may be an opportunity to buy energy companies with juicy yields.
In particular, Vermilion Energy Inc. (TSX:VET)(NYSE:VET), and Husky Energy Inc. (TSX:HSE) pay yields of 5%.
Vermilion Energy offers stable monthly income and returns
Out of the two, Vermilion Energy has higher growth potential because it is a mid-cap oil and gas exploration company with a market capitalization of $5.5 billion.
It pays a monthly dividend equating to a 5% yield. Since 2003, it hasn’t once cut its dividend, so investors can be confident about that monthly income.
Other than a stable monthly income, Vermilion Energy also offers international exposure. It focuses on three core areas: Canada, Europe, and Australia. It is the top oil producer in France, and in 2014 it entered the German gas market. This positions Vermilion for future development and expansion opportunities in Germany.
Its 2015 funds-from-operations estimation is expected to come from Brent Oil (33% from France and 13% from Australia), European Gas (17% from Netherlands, 11% from Ireland, and 4% from Germany), and Canada (16% from WTI Oil, 4% from Canadian gas, and 3% from natural gas liquids).
Vermilion’s international exposure increases its business performance stability, which translates to its stock price. When comparing Vermilion Energy with its mid-cap peers, it has outperformed them in total returns in the one-year, three-year, five-year, 10-year, and 15-year periods. So, if you’re looking for a continuous monthly income and stable, long-term returns with less volatility, you should consider Vermilion Energy.
Husky Energy
Husky Energy has a much bigger market capitalization than Vermilion at $23.5 billion. As an integrated oil and gas company, Husky’s downstream and upstream operations should help maintain the company’s stability in a harsh environment.
Today Husky Energy also offers a 5% yield, but it had previously cut its quarterly dividend in 2009 from $0.50 per share to $0.30 per share, a 40% drop! However, the dividend has remained steady at that level since then.
With a debt-to-capitalization level of only 20% and an S&P credit rating of BBB+, there’s little chance of default for Husky Energy.
In conclusion
I believe Vermilion Energy offers a higher growth opportunity as a small-cap company. If oil prices returns to higher levels, I’m looking for an annualized 20% return for the next few years at today’s $51 level, while getting a monthly dividend with a 5% yield to wait.
Some Foolish investors may not be comfortable with Vermilion’s size. If so, they can consider Husky Energy, a bigger company that also offers a 5% yield.
