Canada has a strong energy industry, boasting some of the top energy stocks in North America to consider for investment. However, investing in the energy industry is not always for the faint of heart. Commodity prices rise and fall with every major geopolitical event, changes in consumer demand, or decisions made by the Organization of Petroleum Exporting Countries (OPEC+).
Amid the volatility, savvier investors can find investments that can deliver solid long-term returns. The key is to identify energy stocks with solid fundamentals and trading at reasonable valuations. Today, I will discuss one Canadian energy stock trading at almost half its 52-week high levels that might be a good fit for your portfolio if you’re bullish on the energy sector.
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Baytex Energy
Baytex Energy Corp. (TSX: BTE) is a $2.1 billion market capitalization energy company headquartered in Calgary. The company engages in acquiring, developing, and producing crude oil and natural gas. It has key assets in Eagle Ford, Texas, and the Western Canadian Sedimentary Basin. The assets offer Baytex diversified production sources.
While BTE stock might not be the biggest name in the energy industry, it has the potential to become one of them. Over the last few years, the company’s management has taken measures to boost production, cut costs, and improve returns to investors.
The measures seem to be paying off, as its latest quarterly report shows. Baytex reported its quarterly results for Q1 fiscal 2025 at the end of April. Its revenue increased by 2.1% year over year. However, in the same period, the company reported a 62% dip in its net income. The downturn was primarily due to hedging and foreign exchange losses, not the company’s operations.
The quarter ended with the company reporting $53 million in free cash flow. This is the kind of money the company can use to repay some of its debt, reward shareholders with bonus dividends, or buy back shares.
A solid investment
As of this writing, the price of a barrel of oil is approximately US$80. Baytex needs the price to be around US$50 to break even, giving it plenty of margin to contribute to its balance sheet. The company has been aggressive in reducing its debt. As of March 31, 2025, the debt stood at $1.3 billion, which is a 35% decrease from its $2 billion debt just a few years ago.
The company is committed to further improving its financials and returning 50% of excess free cash flow to shareholders through share buybacks and dividends. Thus, you can expect stability and growing income by investing in Baytex stock.
While you await the capital gains to materialize over the long run, BTE dividends can keep delivering good returns. As of this writing, Baytex stock trades for $2.66 per share. Down by 49% from its 52-week high, it boasts a 3.4% dividend yield that can add extra cash to your account balance each quarter.
Foolish takeaway
No matter how strong a business looks, it’s important to remember that investing in the energy sector always comes with risks. Commodity price volatility and geopolitical factors have a huge impact on energy companies. However, a company operating like a well-oiled machine can provide far greater returns in the long run despite the downturns.
This means you can ignore short-term volatility and hang on to get significant returns in the long run. To this end, Baytex stock can be an excellent holding to consider.
