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

consider the options
Dividend Stocks

Is TD Bank the Best Dividend Stock for You?

Toronto-Dominion Bank (TSX:TD) has a high dividend yield but is embroiled in a serious money-laundering scandal.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

How to Use Your TFSA to Earn $6,000 Per Year in Passive Income

Hint: You'll need this Hamilton covered call ETF, which yields over 10%.

Read more »

Growth from coins
Dividend Stocks

2 Dividend-Growth Stocks With TSX-Beating Potential That Deserve More Respect

Here are two of the best TSX dividend-growth stocks you can buy today and hold for the next decade.

Read more »

Man pointing at a recycling symbol
Dividend Stocks

GFL Stock Rose 24% Last Month: Is It Still a Buy in July?

GFL stock (TSX:GFL) exploded by 24% in June, but is the growth now over for July? Or can investors still…

Read more »

A woman shops in a grocery store while pushing a stroller with a child
Dividend Stocks

Better Buy: Loblaw Stock or Metro Stock?

Loblaw (TSX:L) and another grocer that could do well over the long haul as markets get rocky.

Read more »

concept of real estate evaluation
Dividend Stocks

BRE Stock: Should You Buy the 10.5% Yield?

BRE stock (TSX:BRE) offers investors the opportunity for a rebound in a real estate sector that should see high prices…

Read more »

dividends grow over time
Dividend Stocks

Prediction: These Could Be the Best-Performing Value Stocks Through 2030

Seeking value stocks trading at a discount? These top value stocks could outperform through 2030 through valuation expansion.

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

3 TFSA Hacks to Build a $1 Million Tax-Free Nest Egg

These TFSA investing hacks could help convert $95,000 into $1 million tax-free. Here's how to get started.

Read more »