Will Crescent Point Energy Corp. Be the Next High Yielder to Cut its Dividend?

Crescent Point Energy Corp. (TSX:CPG)(NYSE:CPG) is once again the highest-yielding stock on the S&P/TSX 60. We all know what that means.

| More on:
The Motley Fool

When entering 2016, TransAlta Corporation and Potash Corporation of Saskatchewan Inc. were the two highest-yielding stocks on the S&P/TSX 60. They both cut their dividends in January.

As a result, Crescent Point Energy Corp. (TSX:CPG)(NYSE:CPG) is once again in the top spot on this list with its yield of 8.2%. It’s a position the company is very familiar with.

So that brings up the obvious question: Will Crescent Point cut its dividend?

How likely is another cut?

Crescent Point has already slashed its dividend once this year. Back in August the monthly per-share payout was reduced from $0.23 to $0.10. And when looking at the numbers, it’s clear why investors are expecting another cut.

According to its most recent investor presentation, Crescent Point would have a payout ratio of 100% assuming an average WTI oil price of US$40 this year. Unfortunately, even this scenario now seems optimistic and is well above current strip pricing.

It gets worse. This scenario “includes the expected impact of monetizing 2017/2018 oil and gas hedges in 2016.” If Crescent Point were to actually do this, it would leave the company more exposed to energy prices in future years, and this kind of strategy is certainly not sustainable.

At this point, Crescent Point would be better off abandoning its dividend altogether. It would allow the company to spend more money on capital projects at a time when labour and equipment costs are depressed. Or the company could buy back stock at a depressed price or repair its balance sheet. All of these options would be a better idea than a dividend that is unsustainable.

Is this a bet worth making?

If you’re looking for dividend stocks, there are certainly better options than Crescent Point. You’d have to accept a lower yield, but that’s a small price to pay for some piece of mind.

And if you’re looking to bet on oil prices, again, there are better options. After all, if you want to make an oil-price bet, why choose a company that pays such a high dividend, especially one that the company cannot afford?

Besides, Crescent Point has already shown it is very willing to cut its dividend. So there’s a good chance the company will do so at its next earnings announcement. I wouldn’t want to be a shareholder when that happens.

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 Benjamin Sinclair 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 »