TFSA Investors: The Best Oil and Gas Stock Is Still Trading at Bargain Prices

Enerplus Inc. (TSX:ERF) (NYSE:ERF) offers investors a top oil and gas stock that has dividend growth and explosive capital appreciation in its future.

Karen Thomas, MSc, CFA

Karen is a stock market enthusiast focused on uncovering those stocks that she believes the market has mispriced. She does this through fundamental and quantitative analysis of companies and their industries, as well as a study of future opportunities and trends. She holds a Masters degree in Finance, the CFA designation, and has over 20 years of experience in the investment management industry. Having worked at a major pension fund, as well as two leading mutual fund firms as an analyst and portfolio manager, she has solid investing expertise which she aims to share with her readers.

Published February 26, 2019 11:24 am EST

TFSA investors, are you looking for a great way to gain exposure to the embattled oil and gas industry?

Are you looking for a stock with both big capital gains potential and solid dividend growth potential?

Look no further.

Enerplus Inc. (TSX: ERF)(NYSE: ERF) is one of the best oil and gas stocks that is firing on all cylinders, with a very attractive risk/reward profile for investors.

Here’s are the main reasons to consider adding Enerplus to your TFSA today:

Exposure to rising oil prices

Oil prices continue to rally, and are up 8% in the last month and 32% since December 2018 lows, price action that Enerplus is well positioned to benefit from.

Because unlike many of the other large Canadian oil and gas companies, this one is relatively unaffected by Canadian oil differentials, which have been very volatile and problematic.

With slightly less than half of its production coming from conventional crude oil, and 90% of production coming from crude oil in general, this $3 billion oil and gas giant is set up to continue to benefit from strong oil prices.

Strong cash flows

Enerplus has a solid balance sheet behind it, with a net debt to adjusted funds flow ratio of 0.4 times, showing a top-notch, financially strong company. As well, the company continues to crank out cash fast and furiously.

In 2017, operating cash flow increased 72%, and in 2018 operating cash flow increased 55% to $739 million, with free cash flow generation of $160 million.

Returning cash to shareholders

With this strong cash flow generation, Enerplus’ capital plans are fully funded, taking much risk off the table.

In terms of uses of cash flow over and above its capital plans, management has signalled to investors that at oil prices above $50, they will prioritize shareholder distributions over growth.

This means that dividend increases are in Enerplus’ future and the stock’s current dividend yield of 1% will rise.

Continued strong results

Enerplus just reported its fourth quarter and year-end 2018 results on February 22.

A report that was very positive, as I had expected.

Fourth quarter free cash flow came in at $141 million despite crude oil prices falling to hit a low of just $43.53 during the quarter.

This, along with continued rising production, solid reserves replacement performance, and reducing costs, all combine to make Enerplus a solid addition to your TFSA portfolio.

We just need investor sentiment around the Canadian oil and gas industry to improve and we will have an opportunity for explosive capital gains in Enerplus stock!