Husky Energy Inc. (TSX:HSE) is one of Canada’s largest oil producers in Canada. The company has over $33.1 billion worth of assets and the capacity to produce over 350,000 barrels of oil per day. The stock took a huge hit during the rout in oil prices; it tanked by a whopping 60% from its high. The dividend was cut entirely as income investors fled out of the stock in herds.
Husky CEO Asim Ghosh is retiring this month, and Rob Peabody will be taking his place as the company begins a fresh year. Rob Peabody has the experience to step into this role; he’s been the COO for over 10 years.
With oil prices in the $50 range, Husky may finally start recording better than expected profits next year as it reinstates its dividend. I believe oil prices are headed to the $60 range in 2017, and it’s very likely that Husky will start paying a dividend yield at about the 3% range.
A big reason why the stock hasn’t rallied with the price of oil is because the company pays no dividend right now. There are a lot of oil companies out there that pay attractive yield north of the 3% range, so why would anyone pick up shares of Husky–a stock that’s been crushed and doesn’t reward patient investors with a dividend?
Once Husky brings its dividend back, we may see income investors jump back into the company, and the result will be a sharp increase back to higher levels. If you buy the stock now, then you can enjoy both the reinstated dividend as well as any capital gains resulting from the news of this reinstated dividend.
The stock is also dirt cheap right now with a mere one price-to-earnings multiple, which is a lot lower than its five-year historical average multiple of 1.4. The stock is trading at a whopping 30% discount right now, and owning shares at such a discounted price implies a huge margin of safety.
Going into 2017, we can expect the global oil glut to shrink to more sustainable levels as demand for crude is still relatively strong. I believe crude is on the slow and steady road to recovery, and firms like Goldman Sachs have stated that crude oil prices may rise above $60 with a support level at about $55.
If you’re a contrarian investor who is bullish on oil, then Husky may be your ticket to huge gains in the new year. There’s no dividend right now, but when it comes back, the stock will be a lot higher than it is right now.
