With the recent improvement in its earnings reports, Cenovus Energy (TSX: CVE) has attracted the eyes of several investors. Now, investors appear to be turning their attention to where oil prices are headed. With crude oil seeing slumping prices of late, Cenovus has been caught in the cross-fire, leading to what many believe could be a value trap, while others may suggest could be a stock providing incredible value.
As we near the end of November, it’s worth diving into Cenvous.
The immediate reason behind the company’s rising profits is increasing oil prices. However, will these gains be sustainable in the long run?
Here are a few factors which can help investors decide.
Excellent Q3 results should spur optimism
Cenovus released its recent third-quarter (Q3) results on November 3, which were, by all accounts, solid. That said, since this report was released, CVE stock hasn’t really done much to provide investors with a reason to buy the stock, as oil prices have declined, and the company is a pure play in this space.
That said, let’s dive into the numbers. The company saw its profits reach US$1.86 billion, up dramatically from the same quarter the year prior, at US$1.61 billion. This wasn’t only due to higher commodity prices. The company’s upstream production increased by 9% year over year, amounting to 797,000 barrels of oil equivalent per day.
Additionally, the restarting of its conventional drilling activities after the Alberta wildfires is also a factor contributing to these high figures.
Recovery of U.S. refineries boosts Cenovus’s profits
Notably, the company also reported in early November that two of its American refineries, Superior and Toledo, have resumed operations. Both of these assets dragged on the company’s earnings due to an explosion in Superior in 2018 and a fire in Toledo in 2022.
Now, as they are up and running, the company’s downstream business has significantly benefitted from it, which is reflected in its Q3 2023 financial reports. Furthermore, the company is looking for integration opportunities between its Toledo and Lima plants in order to capture additional margins.
Cenovus remains a dividend stock worth considering
The company’s latest reports state that Cenovus has declared a dividend payment of $0.14 per common share for the ongoing quarter. The payment date will be December 29 and be available to shareholders of record on December 14.
As a way to play the energy sector from a dividend standpoint, there are other better options out there in terms of yield. Indeed, Cenovus’s current 2.3% yield is nothing to write home about. However, if the company is able to continue to bolster its balance sheet, I see a lot more of the company’s profits rolling back to investors. Thus, those looking for a potential dividend growth play in a rising commodity price environment may want to consider this stock.
Bottom line
According to financial analysts, Cenovus’s returns have expanded at 57% CAGR over the last three years. During this time, its share prices have increased by 272%, and total shareholder returns have grown by 286%.
Given the improving financial position of Cenovus, its increasing production capacity, and its upcoming dividend, the stock is trading at a bargain price. Thus, in November 2023, this stock is a must-buy.
