Is Cenovus stock a buy for its 3.1% dividend yield?

Let’s dive into whether Cenovus Energy (TSX:CVE) is a top dividend stock to buy, or if investors would be better off passing on this energy giant.

There are plenty of sectors investors can focus on to find the best dividend stocks with long-term growth prospects in this current market. On the TSX, a number of energy companies have continued to provide very consistent dividends over time, as well as strong capital appreciation. One look at the chart below and investors will see that Cenovus Energy (TSX: CVE) is a company that should be included in such a list.

Currently, Cenovus’ dividend yield sits at around 3.1%, making this company neither overly attractive or scary at current levels. As such, many dividend investors may question whether this stock is worth buying for its yield at all. After all, we see where U.S. Treasury yields currently sit.

Here’s why I think this dividend stock is one worth considering right now.

Investor wonders if it's safe to buy stocks now

Source: Getty Images

Strong fundamentals

The first thing I do when diving into any particular company is take a look under the hood. Yes, I think it’s important to look at Cenovus’ business model as well. But as an integrated energy company focused on oil and natural gas development, that piece is pretty straightforward.

Given where energy prices are right now, and how volatile they’ve been of late, one of the key questions many investors may have had is how well Cenovus’ earnings have held up. The reality is that they’ve held up quite well, actually.

In the company’s Q2 2024 results, Cenovus noted strong revenue growth, up to $14.9 billion from $12.2 billion the same quarter the year prior. Net earnings also rocketed to $1 billion, leading to a price-earnings multiple of just 9 times for this energy stalwart based in Alberta.

Personally, I think this multiple is insulting given the strong operating margins Cenovus continues to print, even with energy prices having come down on a year-over-year basis. Should the company see more incremental improvement in coming quarters, I think there’s plenty of capital appreciation upside ahead over time, in addition to the 3.1% yield investors receive (which I also think will rise over time).

Why Cenovus looks like a buy

There’s a new narrative building in the market around future energy demands tied to the rise of AI and other technologies. And while much of this discussion is currently centred around renewable energy sources like nuclear, I do think natural gas will get a big boost from this trend. We’re always going to need oil, and the heavy oil produced at the company’s oil sands sites will certainly be needed. But I do think the company’s upcoming Christina Lake pipeline and other key factors could drive fundamental growth, with or without help from energy prices.

Over the long term, my view is that we’re going to need more energy, not less. Accordingly, Cenovus looks like a value stock with a decent dividend that’s worth buying. That goes double if it drops further from here.

Fool contributor Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Energy Stocks

canadian energy oil
Energy Stocks

A Top-Notch 3.8% Dividend Stock Paying Cash Every Month

An energy stock paying monthly dividends is a top choice for investors seeking frequent payouts and outsized capital gains.

Read more »

Tractor spraying a field of wheat with fertilizer
Energy Stocks

Don’t Want to Wait a Year for a GIC Payout? This 6.3% Dividend Stock Pays You Monthly

Here’s why this Canadian dividend stock is worth considering if you want monthly income and long-term growth without locking your…

Read more »

Senior uses a laptop computer
Energy Stocks

Could You Retire on Less Than $1.7 Million? It’s More Common Than You Think

The $1.7 retirement target based on a survey has become a perception and not an official benchmark.

Read more »

Aerial view of a wind farm
Energy Stocks

The Perfect TFSA Stock: A 3.3% Yield With Monthly Paycheques

Northland Power stock is a clean energy producer that's well-positioned as electricity demand soars and new projects come online.

Read more »

Nuclear power station cooling tower
Energy Stocks

Ottawa Unveils Its Clean-Energy Plan Today:The Uranium Stock at the Heart of It

Ottawa’s nuclear strategy supports the uranium story, but Cameco’s contracts, delivery costs, and valuation determine whether the stock deserves your…

Read more »

middle-aged couple work together on laptop
Energy Stocks

Do Canadians Really Need $1.7 Million to Retire? Here’s How to Check Your Number

The $1.7 million survey-based retirement savings target may not be the actual number most Canadians need to retire comfortably.

Read more »

runner checks her biodata on smartwatch
Energy Stocks

Turning 60 in 2027? Taking CPP Early Shrinks Your Cheque 36%

Taking CPP early means more years of payments but smaller monthly cheques. A simple calculation shows what waiting requires.

Read more »

Hourglass projecting a dollar sign as shadow
Energy Stocks

Investing $1,000 Today vs. Waiting for the “Perfect” Moment

You can invest $1,000 today and put it to work in resilient Canadian stocks rather than wait for the “perfect”…

Read more »