Sell or Hold? Pension Fund Managers Ditch 1 TSX Dividend Aristocrat

Two pension fund managers ditched a TSX Dividend Aristocrat but will reconsider reinvesting if the oils ands producer shows positive progress in its climate strategy.

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Four Canadian energy stocks got a big lift when the country’s largest pension funds increased their investments in oil sands players in the first quarter of Q1 2021. The Canada Pension Plan Investment Board (CPPIB) and four other pension fund managers expect fossil fuel producers to transition toward producing cleaner energy.

The fund recipients, Suncor Energy, Canadian Natural Resources, Cenovus Energy, and Imperial Oil (TSX: IMO)(NYSE:IMO), are the Oil Sands Pathways to Net Zero Alliance members. Meg Energy and ConocoPhillips complete the group, which aims to achieve net-zero greenhouse gas (GHG) emissions from oil sands operations by 2050.

Energy stocks have been hot buys in 2021, because of the improving crude pricing environment. Most oil companies reported significant increases in net incomes and free cash flows versus 2020. Imperial Oil is among the top choices of income investors for its killer earnings and an impressive run in the stock market.

However, there are reports that the National Employment Savings Trust (Nest), U.K. pension plan, and large-scale asset manager UBS AM ditched Imperial Oil. They claim that the oil sands producer has shown a lack of progress in managing climate change risk. Should shareholders follow the pension fund managers and sell Imperial Oil?

Not enough effort

UBS AM and Nest are climate-conscious investors, which means they invest in companies that consider climate change in their business strategy. UBS AM’s head of thematic engagement & collaboration, Francis Condon, said, “We have seen positive progress from most companies in the program on their climate strategy and transition to a lower-carbon economy. However, where we have not seen tangible progress, we are taking action.”

Nest’s senior responsible investment manager, Katharina Lindmeier, said, “At Nest, we aim to work with companies to encourage sustainable business decisions but will draw the line somewhere.” She added that Imperial Oil and its parent company ExxonMobil plus three more oil companies, have not done enough to convince them to stay on as shareholders.

However, it doesn’t mean that Imperial Oil will forever be on the blacklist. Condon said UBS AM must see positive progress on its climate strategy and transition to a lower-carbon economy. Nest said the energy stock would not return to its portfolio until it demonstrated clear progress in preparing for the low carbon economy.

Near-term plans

Imperial Oil expects a capital spending of $1.4 billion in 2022. The $31.33 billion crude oil and natural gas company will invest in an in-pit tailings project at its oil sands facility and in its autonomous fleet and the application of solvent technologies. Management also hopes to complete and commission products pipeline.

Also, the company will make its final decision on the Strathcona renewable diesel project next year. Imperial forecasts production between 425,000 and 440,000 gross oil-equivalent barrels per day. Furthermore, the refinery should deliver 395,000 to 405,000 barrels per day, with capacity utilization around 92% to 94%.

Dividend Aristocrat

Income investors can’t drop Imperial Oil easily, despite the divestments of the pension fund managers. Apart from its outperformance (+91.91% year to date), the energy stock is a Dividend Aristocrat. It has a dividend track record of 140 years and has raised its dividends for 26 consecutive years. The current share price is $45.04, while the dividend yield is 2.4% if you invest today.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends CDN NATURAL RES.

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