A rebound in the energy sector has investors wondering which names might be attractive picks for the rest of 2018 and beyond.
TransCanada reported strong results for Q1 2018. Earnings came in at $870 million, or $0.98 per share, compared to $698 million, or $0.81 per share, for the same period the previous year.
Contributions from $7 billion in new projects more than offset the loss of revenue from the sale of the company’s Northeast Power assets in the United States.
Going forward, TransCanada is working through $21 billion in near-term commercially secured developments that should boost revenue and cash flow enough to support annual dividend increases of at least 8% through 2021.
In addition, the company has $20 billion in longer-term projects under consideration, including Keystone XL, the Bruce Power Life extension program, and Coastal GasLink. A green light for any of these developments could trigger an upward revision to the dividend-growth guidance.
TransCanada currently pays a quarterly dividend of $0.69 per share for an annualized yield of 5%.
The stock has bounced from $51 to $55 per share in the past month but is still down from $64, where it was at this time last year.
Crescent Point was a $45 stock and paid a monthly dividend of $0.23 per share back in 2014, when oil traded for US$100 per barrel. Unfortunately, the downturn lasted longer than most people expected, and Crescent Point was forced to trim the payout to $0.10 and then again to $0.03, where it currently stands.
The stock hasn’t fared much better. At the time of writing, Crescent Point can be picked up for $10 per share, which isn’t too far off the 12-month low of $8.
Crescent Point fans are surprised the stock isn’t trading at a higher level, especially given the rebound in WTI oil from US$42 last summer to recent highs above US$70 per barrel. The company has an attractive asset base and, despite recent distractions from a battle with an activist investor, is posting some improved numbers.
Crescent Point says it remains on track to hit 2018 exit production growth of at least 7% and says it can cover the existing dividend and its capital expenditures with funds from operations. Management recently sold $225 million in non-core assets and intends to use the funds to reduce debt.
Is one a better bet?
Contrarian investors with a bullish view on oil and a stomach for volatility might want to take a small position in Crescent Point while the company remains out of favour. Otherwise, I would probably make TransCanada the first choice today, given the strong dividend-growth outlook.
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Fool contributor Andrew Walker has no position in any stock mentioned.