When it comes to security in the last 150 years, energy stocks are the ones to beat. These companies are used for everything, from powering our homes to our vehicles and everything in between. And it’s why energy stocks can be the best way to fuel dividends for decades.
That’s why today we’re going to look at one dividend stock in the energy sector that promises to continue fuelling those dividends – one that intersects essential demand, strong cash flow, and long-life assets. So let’s get into it.
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Why energy
First, let’s look at why energy is a great investment in the first place. The main reason? It’s not disappearing, ever. Whether we shift to renewable or stay on oil and gas, we need power, plain and simple. It’s simply a core to our global economies. This means energy companies can continue to count on steady baseline demand. That means reliable cash and dividends for investors.
And that sector is highly cash-rich. After big projects and infrastructure are in place, operating costs are relatively low compared to revenue. That’s especially true for pipelines, refineries, and power plants, which can run on and on for decades, spinning off free cash. Cash that goes to investors, usually through dividends.
Dividends tend to go hand in hand with these energy companies. Large producers and pipeline operators reward investors with sustainable payouts, raising them often. This can go on for up to 50 years with some companies! And while the world might be shifting, we’ll still need the basics to power our present. Yet these energy stocks now also have the opportunity to get in on renewables, providing even more growth opportunities for investors.
Peyto
All this leads into why investors might want to consider Peyto Exploration & Development (TSX: PEY). This energy stock has a long history of fuelling dividends, thanks to a strong balance sheet and low debt. The energy stock is focused on natural gas, which remains critical, as mentioned. What’s more, Peyto’s efficient production and strategic position mean it should keep the gas flowing through for years.
Clearly, the dividend stock is doing something right. Over the last year, Peyto saw its share price rise more than 7%, beating the S&P 500. Earnings also climbed about 71% year-over-year, with revenue up 35% to $968 million. Profit margins remain strong with a 34% net margin and 52% operating margin. This shows the efficiency of this energy stock.
What’s more, there’s plenty of reason to get in on the energy stock today. The dividend stock trades at just 11.1 times earnings, with a forward price-to-earnings (P/E) of 7.4. Therefore, the market expects the dividend stock to keep on rising. As for that dividend, it currently offers a 7.2% dividend yield! That means a $7,000 investment could bring in $504 in dividend income each and every year, or $42 every month.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|
| PEY | $18.31 | 382 | $1.32 | $504.24 | Monthly | $6,997.42 |
Bottom line
All in all, this is an energy stock with a lot to look forward to. There’s a delicious dividend, supported by an 80% payout ratio, and operating cash flow to keep everything afloat. With energy still very much a part of our lives, particularly natural gas, Peyto stock is therefore a significantly strong investment for today’s Canadian investor.
