If you’re looking for exposure to Canada’s energy sector, Imperial Oil (TSX:IMO) stands out as a solid pick. While its current dividend yield of 2.3% may not be the highest available on the TSX today, Imperial Oil’s reputation for stability and strong financials make it a safe stock for Foolish investors seeking steady income and the possibility of capital growth in the long run.
In this article, I’ll highlight why Imperial Oil’s stable dividends, combined with its strong fundamentals, could make it a smart addition to your portfolio right now.
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Imperial Oil stock
In a sector known for volatility, IMO stock has been outperforming the broader market by a wide margin for the last four consecutive years. This Calgary-headquartered integrated oil company primarily focuses on the production, refining, and marketing of petroleum products. It distributes petroleum products nationwide, primarily under the Esso brand, and is also active in the chemical sector.
After the COVID-19-related woes led to the crash in the prices of energy products, Imperial Oil’s share price tanked by 30% to around $24.16 per share. However, its shares have staged a remarkable comeback, rallying over 338% from their closing level in 2020. So far in 2024, IMO stock has inched up by over 40% to currently trade at $105.76 per share with a market cap of $55.4 billion. At this market price, the stock offers a 2.3% annualized dividend yield.
Strong financials support the stock rally
Imperial Oil’s impressive stock performance can largely be attributed to its robust financial position. In 2023, the company generated nearly $4.9 billion in net profit and $3.7 billion in cash flow from operating activities, which helped maintain liquidity and support ongoing capital investments.
Another key area that investors may want to note is its consistent focus on managing costs effectively. The company posted $9.8 billion in operating costs last year, reflecting a slight reduction from the previous year. These cost controls, combined with strong revenue generation, have allowed Imperial to maintain a competitive dividend payout and sustain its share buyback programs. In fact, in 2023 alone, the company repurchased $3.8 billion worth of shares.
Is Imperial Oil stock a buy for its 2.3% dividend yield?
Besides its strong financials, Imperial Oil is continuing to advance significant growth projects to accelerate growth further, such as the Grand Rapids Phase 1 project, the first solvent-assisted steam-assisted gravity drainage project in the industry. This innovative technology is likely to not only increase production efficiency but also reduce greenhouse gas emissions, which could be a key advantage in today’s regulatory environment.
Moreover, the company’s work on Canada’s largest renewable diesel facility at the Strathcona refinery is set to strengthen its position in the energy transition further. The facility is expected to produce over a billion litres of renewable diesel annually, which should also add to its revenue growth. Considering these factors, despite a low annual dividend yield of 2.3%, Imperial Oil’s dividend sustainability and strong growth prospects make it an attractive stock for long-term investors.
