We all dream about what it will be like to retire securely. For some, that might mean finally being able to travel the world. For others, it might just mean having more time to do what you love, including spending time with loved ones. Whatever your retirement dream, the thing that’s needed to make it a reality is a secure income stream. For those who aren’t sure where their retirement income will come from, here are three stocks that could provide just what you need.

These boring assets produce a beautiful income stream

For many, Brookfield Infrastructure Partners LP (TSX:BIP.UN)(NYSE:BIP) is as dull a company as they come. That’s because most don’t find much excitement in a company that owns a diversified portfolio of pipelines, power lines, ports, and other infrastructure assets.

However, while there might not be anything exciting about the assets Brookfield Infrastructure Partners owns, what is exciting is the steady stream of cash flow these assets generate each year. Overall, 91% of its cash flow comes from contracted and regulated sources. Meanwhile, with high margins and minimal maintenance needs, it’s able to return 60-70% back to investors each year, enabling those buying today to nab a 4.5% yield.

That said, Brookfield Infrastructure Partners’s current income stream is only part of the story. The company is in the midst of a major expansion phase consisting of US$2.3 billion of capital projects. Those growth projects, when combined with other factors, should increase its earnings by 6-9% per year, giving the company clear visibility to increase its payout by 5- 9% per year.

In addition, Brookfield Infrastructure Partners has a knack for buying high-quality infrastructure assets at good prices, which enhances its ability to grow the payout. In fact, it has already increased its distribution by 11% this year and at a 12% compound annual rate since forming in 2009. Given its history and future projections, investors can count on steady income growth for years to come.

The lazy way to be a landlord

One way many retirees try to generate retirement income is by owning real estate. However, that can be a job in itself. That’s why my preferred land lording option is Brookfield Property Partners LP (TSX:BPY.UN)(NYSE:BPY), which owns a global real estate portfolio. Those properties throw off rather steady income, which Brookfield Property Partners sends back to investors via a rather healthy 5% yield.

That said, like its infrastructure sibling, that income stream is only one part of the Brookfield Property Partners’s story. The other part is its clearly visible growth.

Using a similar combination of embedded organic growth initiatives, such as redevelopment and development projects underway, Brookfield Property Partners expects to grow its earnings by 8-11% annually through 2021. That provides it with the clear line of sight to deliver 5-8% annual distribution increases over that same time frame. Best of all, there are no tenants to chase or overflowing toilets to fix, making this the lazy way to be a real estate mogul.

Getting paid to go green

Brookfield Renewable Partners LP (TSX:BEP.UN)(NYSE:BEP) shares many of the same characteristics as its siblings. It too generates steady cash flow since contractual obligations support 90% of its earnings stream. Meanwhile, it expects that a combination of contract escalators and development projects in the pipeline will support steady mid-single-digit cash flow growth over the next several years.

The only real difference is that it generates cash flow from hydro and wind power assets as opposed to infrastructure and property assets, enabling investors to collect some green by going green. In fact, the company has a higher current yield than its siblings at more than 6%. Meanwhile, with visible cash flow growth in the forecast, the company expects to boost its distribution by 5-9% annually over the long-term, making it an excellent income growth stock for retirement-focused investors.

Investor takeaway

These Brookfield entities all generate steady cash flow, the bulk of which they distribute back to investors. On top of that, each has visible growth on the horizon due to contract escalations and projects in the pipeline, giving them the ability to project mid-single-digit annual distribution increases over the long term. It’s those growing income streams that make these companies such compelling options for investors seeking security in their retirement years.

The post This High-Yield Trio Could Be Your Ticket to a Secure Retirement appeared first on The Motley Fool Canada.

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Cenovus Energy Inc. (TSX:CVE)(NYSE:CVE) built up a massive cash war chest during the oil market downturn to ensure it had ample liquidity to stay afloat. Recently, that cash position was up to $3.7 billion, which had analysts wondering what it would do with the money now that market conditions have improved; many called for the company to start returning the funds to investors via a higher dividend or share buyback.

However, the company resisted those calls, wanting to ensure it had the financial strength for whatever might lie ahead. That said, instead of another downturn, what materialized was the opportunity of a lifetime which the company could seize thanks to its healthy cash position.

Leveraging its cash position

That opportunity was the ability to take control of its oil sands assets by acquiring ConocoPhillips’s (NYSE:COP) stake in the Foster Creek Christina Lake partnership in a $17.7 billion deal which also included several natural gas assets in western Canada. While that purchase price was well above its current cash position, its funds gave the company a good head start.

Overall, Cenovus will pay ConocoPhillips 208 million of its shares and  $14.1 billion in cash, which, after backing out its cash position, left the company about $10 billion short. That said, it has already secured a $10.5 billion bridge loan to cover that amount.

Further, Cenovus has since launched a bought deal offering to raise $3 billion in equity as it starts taking steps to trim down that term loan, which it plans to pay back over the next two years via future senior debt offerings and asset sales. In fact, the company has already put several assets on the market, which could be worth up to $1.8 billion.

The transformational transaction

This transaction is game-changing for Cenovus. It immediately more than doubles the company’s production and reserves. Further, the transaction is also immediately accretive on a per-share basis; the company is projecting an 18% increase in adjusted funds flow from operations next year when accounting for the increased share count and planned asset sales.

Further, the deal provides the company with a clear line of sight to expand its oil sands assets because it now has full control over the timing of expansion projects. As such, it expects to increase production from 365,000 barrels per day up to half a million barrels per day in five years. Further, the acquired gas assets also come with built-in growth with the company expecting production to increase 40% by 2019.

These production increases should fuel a significant increase in adjusted funds flow per share versus Cenovus’s previous three-year business plan. Further, the company believes it can achieve that growth while living within cash flow at current commodity prices, which positions it to deliver a significant improvement in its credit metrics over the long term.

Investor takeaway

As Cenovus’s cash position grew, so did the calls that it should start sending it back to investors. However, by resisting those calls, the company was able to pounce on an opportunity that significantly increased its scale, enabling it to take control of its future. It’s a deal that could pay even bigger dividends for investors down the road, especially in an improving oil market.

The post Cenovus Energy Inc. Finally Finds a Good Use for its Cash Hoard appeared first on The Motley Fool Canada.

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After two challenging years, most oil companies were optimistic as they entered 2017, Baytex Energy Corp. (TSX:BTE)(NYSE:BTE) included. However, while the company issued a positive outlook for 2017 compared to last year, its guidance fell well short of what several competitors expect to do this year. Here’s why it’s losing ground to the competition.

Organic exit-to-exit growth rate: 3-4%

When Baytex announced its 2017 budget in mid-December of last year, the company said it would spend between $300 million and $350 million on capex, which was its first spending increase in two years. That money would enable the company to drill enough new wells to fuel steady production growth over the course of the year, so by the fourth quarter, its output would be 3-4% higher than the same period of 2016.

That said, overall production would average 66,000-70,000 barrels of oil equivalent per day (BOE/d) this year, which, at the midpoint, represented a slight decline from last year’s average of 69,509 BOE/d.

That guidance was well below what other producers anticipated they could achieve this year.

For example, Crescent Point Energy Corp. (TSX:CPG)(NYSE:CPG) expects to achieve a 10% increase in its exit-to-exit rate production, and that’s off a much higher base of 167,000 BOE/d at the end of last year. Further, the company expects to increase its full-year average from 167,764 BOE/d last year up to 172,000 BOE/d this year.

Meanwhile, smaller rival Penn West Petroleum Ltd. (TSX:PWT)(NYSE:PWE) expects to deliver double-digit exit-to-exit growth this year from its retained asset base, which produced 28,655 BOE/d in last year’s fourth quarter.

Cash flow breakeven level: $55

One reason Baytex is growing at a slower pace than its rivals is due to a much higher cash flow breakeven level of $55 per barrel. Contrast this with Crescent Point, which can fund its growth-focused capex budget and its current dividend while living within cash flow at $52 oil. Meanwhile, Penn West can entirely self-fund its capex program, even if oil drops to $40 per barrel.

Even companies that used $55 as the basis of their budget left themselves plenty of room to spare. For example, Canadian Natural Resources Limited (TSX:CNQ)(NYSE:CNQ) could fully fund its growth-focused capex budget and recently increased its dividend while still generating $1.7 billion of excess cash flow at that oil price. Canadian Natural Resources even has enough flexibility in its budget to roll back capex spending by up to $900 million if oil prices slump while still delivering production growth.

Debt-to-enterprise value: 65%

The primary reason why Baytex is growing at a slower pace and has a higher cash flow breakeven is due to a much higher debt load than its competitors. For example, Baytex’s enterprise value is $2.7 billion, but it has more than $1.75 billion in debt, meaning that debt makes up 65% of its total value. Contrast this with Canadian Natural Resources, Penn West, and Crescent Point, which have debt-to-enterprise value ratios of 26%, 31%, and 33%, respectively.

Because Baytex has more proportional debt than its peers, it’s paying a higher percentage of cash flow out to creditors. That additional expense is why its cash flow breakeven level is higher than its peers. That’s cash the company could be using to increase production instead of making interest payments.

Investor takeaway

Baytex isn’t growing anywhere close to the same rate as its rivals in the current environment. The primary culprit is its oversized debt load, which is causing interest expenses to eat a higher portion of its cash flow. Until Baytex solves its debt problem, it will likely continue to fall behind the competition.

The post 3 Ways Baytex Energy Corp. Is Losing to the Competition appeared first on The Motley Fool Canada.

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There’s growing uncertainty in the oil market these days. After rebounding over the past year, oil prices have turned lower in recent weeks, plunging back below $50 per barrel. Several oil stocks have followed it down, including Suncor Energy Inc. (TSX:SU)(NYSE:SU), Encana Corp. (TSX:ECA)(NYSE:ECA), and Crescent Point Energy Corp. (TSX:CPG)(NYSE:CPG).

However, instead of joining the crowd and selling out of oil stocks, you might want to join me and consider buying this trio of top-tier oil stocks. Here’s why.

A well-oiled machine

Suncor is a better oil company today than it was when oil prices were triple digits. That’s because the company has taken advantage of opportunities during the downturn to improve all aspects of its business.

One of the most evident improvements is the makeup of the company’s portfolio. Suncor pounced on the opportunity to acquire oil assets at a discount, bolstering its stakes in the producing Syncrude facility and the upcoming Fort Hills mine, while taking a shot at future growth through the acquisition of an interest in the Rosebank discovery in the North Sea.

The company also cashed in several non-core assets, including its lubricants business, a wind farm, and some storage assets. As a result, the company set itself up to deliver significant production growth, including anticipating 13% production growth this year.

In addition, the company has dramatically reduced costs. For example, cash operating expenses per barrel have declined from $28 to $24.95 in the oil sands over the past year and from $40.15 to $32.55 at Syncrude. Because of this, the company generated more cash flow last quarter than it did in the fourth quarter of 2015, despite lower oil prices. With its shrinking expenses and clear production growth on the horizon, Suncor should thrive in the current market environment.

Lots of low-cost growth opportunities

Encana is another company that has focused on getting its costs down, so it can thrive at lower oil prices. The company has tackled costs on several angles; it has cut $3 billion of debt since the end of 2014, which cut its interest expenses by 40% since 2012, or about $70 million per quarter. In addition, the company has reduced general and administrative expenses 55% since peaking in 2012, shaving about $40-45 million in quarterly expenses.

In addition to those operational cost savings, Encana has cut drilling costs to such a degree that it now controls 10,000 future drilling locations that can generate a 35% after-tax rate of return at $50 oil. Most of these cost savings are permanent thanks to a focus on efficiency gains, self-sourcing of supplies, and optimization efforts. Encana is in the position where it can still deliver substantial growth, even at current oil prices.

A low breakeven point

Crescent Point has also worked hard to reposition itself to thrive at lower oil prices. As a result of those efforts, the company is in the position to deliver steadily expanding production in 2017 with plans to increase its output 10% by the fourth quarter. Further, the company can pay for that growth and its dividend while living within cash flow at $52 oil.

While crude oil has recently fallen below that breakeven level, that’s not much of a concern for Crescent Point because it has a cash-rich balance sheet, thanks in part to generating excess cash flow when oil was above that level earlier this year.

Further, Crescent Point’s $52 breakeven level is lower than most rivals; Encana, for example, isn’t on pace to break even at its current spending rate until 2018, and that’s assuming oil averages $55 per barrel. Though, like Crescent Point, Encana has a cash-rich balance sheet and billions of dollars in total liquidity to bridge any gaps in the interim. It’s that cushion that should enable the company to keep drilling, even though oil prices have taken a dip.

Investor takeaway

Suncor, Encana, and Crescent Point all anticipate delivering double-digit production growth this year, even if oil prices remain volatile. These companies are in that position because they have significantly improved their balance sheets and cost structures, so they can thrive at lower oil prices. That’s why oil investors should consider taking advantage of their recent sell-off to add one or more of these high-quality oil stocks to their portfolios.

The post 3 Canadian Oil Stocks I Would Seriously Consider Buying Right Now appeared first on The Motley Fool Canada.

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Pengrowth Energy Corp. (TSX:PGF)(NYSE:PGH) issued a stark warning to investors late last year. The company basically said that unless it made significant progress on deleveraging its balance sheet, it might breach its financial covenants, which could cause all its debt to become due at once. However, since that time the company has taken several steps to address the issue, pushing its doomsday clock further away from striking midnight.

Getting some breathing room

In the company’s third-quarter report last November, Pengrowth warned that it was on pace to breach its financial covenants in the middle of 2017. However, during the fourth quarter, the company took a significant step away from the brink by selling a gross overriding royalty interest in its Lindberg asset for $250 million in cash.

As a result of that deal, and its ability to generate some excess cash flow, it was able to repay its credit facility as well as a portion of its 2017 debt maturities. In addition, the company received a waiver from its creditors to eliminate one of its covenants.

Because of this progress, the company noted in its fourth-quarter report this past February that it now anticipates that it could remain in compliance with its remaining covenants through the end of next year. That said, to do so, the company projected that it would need to access the capital markets before the end of this year, and that it would need to see some improvement in oil and gas prices.

However, the company also said that it intended to continue pursuing asset sales, which could raise the cash it needed to pay down debt and give it more breathing room.

Making more progress

Those efforts to sell assets paid off last week after the company announced two transactions. In the first deal, Pengrowth said that it found a buyer for a portion of its Swan Hills assets. Under the terms of that agreement, the company sold properties that currently produce 4,920 barrels of oil equivalent per day (BOE/d) for $180 million in cash. The company stated that it planned to use $100 million of that cash to repay a portion of debt that’s scheduled to mature later the year.

That said, one of the downsides of this deal is that the company will lose the associated production and cash flow. As a result, the company reduced its full-year guidance for production from a range of 50,000-52,000 BOE/d down to 47,000-49,000 BOE/d, while also reducing funds flow guidance from $195 million to $170 million. However, that’s the price it needed to pay for some more breathing room.

Speaking of which, Pengrowth got itself some more space a few days later when it announced the sale of some non-producing lands in the Montney shale for $92 million. That sale is noteworthy because those assets were not generating any current production or cash flow for Pengrowth, so it will not see any negative financial impact from the deal. Instead, it was able to capture the value of the land and use that cash to bolster its balance sheet.

Investor takeaway

With last week’s asset sales, Pengrowth has taken another step closer to ensuring its long-term sustainability in a low-oil-price world. Given the cash inflow, the company might not need to issue equity at its currently depressed stock price just to stay afloat. That said, while the company’s finances are clearly heading in the right direction, it still has much more work left to do before it can thrive in the current volatile oil-price environment.

The post Pengrowth Energy Corp. Takes Another Small Step in the Right Direction appeared first on The Motley Fool Canada.

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Baytex Energy Corp. (TSX:BTE)(NYSE:BTE) used to be a growth-focused oil company. However, as a result of a significant decline in oil prices, the company not only stopped growing last year, but its production dropped sharply. While the company expects to return to growth mode this year, it still has a long uphill battle just to get back up to its former peak. Unless something transformational occurs, Baytex’s growth days could be in the rear-view mirror.

All good things must come to an end

As the following chart shows, Baytex’s production was on a steady upward trajectory until last year:

Data source: Baytex. Chart by author.

However, that growth came to a halt as a result of the oil market downturn, which forced the company to take action to shore up its balance sheet. Among the measures it took was to shut in uneconomic production, significantly reduce capital spending, and sell some non-core assets.

The decline in capex had the most meaningful impact because the company could no longer drill enough new wells to maintain its output. For perspective, the company initially expected to invest $325-400 million last year, which would enable it to drill enough new wells in the U.S. and Canada to keep its production between 74,000 and 78,000 barrels of oil equivalent (BOE/d) after proactively shutting in 7,500 barrels of uneconomic production.

However, as a result of a sharp sell-off in oil prices to start the year, the company cut spending by another 33% to $225 million, including axing its entire Canadian drilling program, resulting in the projection that production would fall to a range of 68,000-72,000 BOE/d. In the end, the company was able to produce about 69,500 BOE/d last year after the dust settled on some M&A transactions that including jettisoning some non-core assets in the U.S. and Canada as well as recently completing an acquisition in Canada.

The road ahead

With higher oil prices on the docket for 2017, Baytex was able to increase its spending level for the first time in two years, setting an initial budget of $300-350 million. However, that’s still not enough capital to maintain last year’s production rate. Though, the company’s output will steadily increase throughout the year, so production in the fourth quarter should be 3-4% higher than it was at the start of this year.

Still, that leaves Baytex quite short of its 2015 peak. At best, all the company will be able to do is deliver low single-digit output increases on an annual basis at current oil prices, which means it could be years before it reclaims the previous peak. The company would need oil prices to rise sharply, which would provide it with more cash flow to drill additional wells.

For perspective, Baytex needs $55 oil to fund its current $300 million capex budget, while $65 oil would give it upwards of $150 million in free cash flow, which it could use to fuel meaningful production growth. For example, the company can drill an Eagle Ford well for around US$5.6 million and deliver an initial production rate of about 1,300 BOE/d given its recent well results. Meanwhile, a Peace River well costs it about $2.5 million, and those wells have recently delivered initial production rates of around 600 BOE/d.

Baytex’s other option is to look for acquisitions that move the needle. The company was able to find one deal last year, paying $65 million for assets in the Peace River, which added 3,000 BOE/d to its production base as well as another 3,000 BOE/d of shut-in production that it can restart for around $30 million. It would just take a few more deals like that to get the company back over the top.

Investor takeaway

The way things are going right now, Baytex is a long way from getting back to its prior peak, let alone start growing again. However, it wouldn’t take that much to get the company back on track as a meaningful oil price improvement or a needle-moving acquisition would do the trick. The problem is that both of those things are largely outside the company’s control, which means investors are betting more on hope, because Baytex can’t deliver much growth given the way things are at the moment.

The post Are Baytex Energy Corp.’s Growth Days Over? appeared first on The Motley Fool Canada.

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Penn West Petroleum Ltd. (TSX:PWT)(NYSE:PWE) completed a dramatic turnaround last year. Thanks to a significant asset sale as the clock ticked away towards a looming debt deadline, and a meaningful improvement in costs, the Canadian driller is back on solid ground. The company is in the position where it can deliver strong growth at current commodity prices, which should create value for its investors over the long term.

Here are three numbers that show just how dramatically the company has improved over the past year.

A 76% reduction in debt

The catalyst for Penn West Petroleum’s turnaround was the completion of several asset sales that not only repaid debt but simplified the company’s portfolio. Overall, the company closed $1.4 billion in asset sales last year. More importantly, despite the company’s financial troubles, it did not sell these assets at fire-sale prices. Instead, it received a premium to the value of the reserves, which were an estimated $1.1-1.2 billion.

By selling assets above that value, the company was able to deliver a remarkable 76% decrease in total debt by year-end:

Data source: Penn West Petroleum Ltd. Chart by author. In millions of Canadian dollars.

Meanwhile, the company’s leverage ratio has improved from nearly breaching its five times financial covenant to less than two times debt-to-funds from operations. Further, another benefit of jettisoning those assets is that the company has also reduced its asset retirement obligations from $397 million at the end of 2015 to $182 million at the end of last year.

Penn West has more balance sheet improvements on the way. The company recently completed an additional $65 million of asset sales and should close a final $10 million sale shortly. Those sales, combined with the expectation that it will generate free cash flow, should push its total debt down to $400 million by the end of the first quarter.

A 12% improvement in cash margins

One of Penn West’s other focuses last year was to improve its costs, which would enable it to make more money per barrel of production while also stretching its capital dollars. The company completed several initiatives to drive out costs, including selling some lower-margin assets. The net result was a 12% improvement in its netback despite a lower realized commodity price last year:

Data source: Penn West Petroleum Ltd. Chart by author.

Penn West expects margins to continue improving in 2017. The company’s aim is to boost its netback up to a range of $20-22 per BOE this year due to the expectation for higher oil prices than last year as well as benefiting from the lower operational costs of a more focused portfolio.

A 3% drop in the corporate decline rate

Oil production is a very capital-intense business. Drillers are in an endless cycle of reinvesting capital back into their asset base to both offset declining output from legacy wells and grow production. One thing Penn West has done over the past year is to reduce the amount of oil production it needs to replace each year by finding ways to shrink its decline rate.

These efforts are paying off, evidenced by the fact that the company’s corporate decline rate has improved from 22% at the end of 2015 to a current rate of 19%.

More of the company’s capex budget is going towards growth spending instead of maintenance. In fact, at the company’s current $180 million budget, the improving decline rate has freed up an incremental $15 million of capital it can now allocate to growth projects. For perspective, that’s enough money to enable Penn West to drill three wells in prospective zones as it tests its acreage. The company’s aim is to get its decline rate down to 15% in the future, which would free up another $20 million in growth capital.

Investor takeaway

Penn West Petroleum has come a long way over the past year. While the company’s ability to sell assets above the reserve value helped get the ball rolling, the initiatives to lower costs and the corporate decline rate have also helped in its turnaround efforts. The net result is a company that now has what it takes to thrive at lower oil prices.

The post Penn West Petroleum Ltd.’s Stunning Turnaround in Just 3 Numbers appeared first on The Motley Fool Canada.

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The price of crude oil has been in a funk this month, plunging over 9% last week amid concerns that oil stockpiles in the U.S. were growing out of control. The slump pushed crude to its lowest price since November after it closed below $50 per barrel. That price level is more than just a psychological barrier because several oil stocks were banking on crude staying well above that critical mark to fuel their 2017 growth plans.

Taking it on the chin

Encana Corp. (TSX:ECA)(NYSE:ECA) is one of the many oil stocks that have sold off sharply in recent weeks as a result of the crude oil slide; it’s down nearly 20% over the past month. One reason for the decline is that the company requires $55 oil to fuel its production growth engine over the next few years. However, with crude down sharply in recent weeks, the company might not generate as much cash flow as expected, which could cause it to pull back the reins on its drilling activities.

Baytex Energy Corp. (TSX:BTE)(NYSE:BTE) is another oil stock that has taken a beating this year as a result of the recent slump in oil prices. Since the start of the year, its stock is down nearly 30%. Fueling that decline is the fact that, like Encana, Baytex needed crude closer to $55 to feed its 2017 budget.

In fact, Baytex recently restarted its Canadian heavy oil drilling operations as a result of crude’s rise last year, reversing its decision to halt drilling early last year due to low oil prices, so it could match capex with cash flow. However, it now runs the risk of outspending cash flow this year if crude doesn’t pick back up, which would put pressure on its debt-heavy balance sheet.

Built-in breathing room

Both Encana and Baytex based their 2017 spending plans on $55 oil, which at the moment appears to be a bit ambitious, especially when compared to the budgets of some of their peers.

For example, Crescent Point Energy Corp. (TSX:CPG)(NYSE:CPG) can fully fund its growth-focused 2017 budget and its dividend at $52 oil. Meanwhile, Penn West Petroleum Ltd. (TSX:PWT)(NYSE:PWE) only expected to use 80% of its funds flow from operations to finance its growth-focused 2017 capex plan. Both companies have more breathing room than rivals that based their budgets on higher oil prices.

Likewise, Canadian Natural Resources Limited (TSX:CNQ)(NYSE:CNQ) put together a very conservative budget for 2017. While the company did use $55 oil as its budget level, it could finance $3.9 billion of growth projects and pay the dividend at that oil price while still producing between $1.5 billion and $1.9 billion in free cash flow.

Further, Canadian Natural Resources built in flexibility, so it could increase spending by up to $595 million or cut it by $900 million depending on what happened to oil prices. The company’s free cash flow buffer and ability to defer spending mean it shouldn’t have any problem handling the recent slump in crude prices.

Investor takeaway

Canadian oil companies took two vastly different approaches to budgeting in 2017. Crescent Point, Penn West, and Canadian Natural Resources took a very conservative approach. These companies probably will not need to alter their plans if crude continues to head lower.

However, Encana and Baytex banked on crude rising to $55 per barrel this year, which they anticipated would provide the cash they needed to meet their rather ambitious budget projections. However, with crude diving, it’s causing investors to worry that these companies might have gotten a bit too aggressive, which could force them to cut back on spending if conditions grow much worse.

The post These Oil Stocks Have Investors Quaking Now That Crude Has Crashed Below $50 appeared first on The Motley Fool Canada.

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Taking control

Last week, Brookfield Renewable announced that along with its institutional investors, it had agreed to acquire 100% of wind and solar operator TerraForm Global Inc. (NASDAQ:GLBL). The Brookfield consortium will pay roughly US$1.3 billion, consisting of US$787 million in cash and the assumption of US$455 million of debt to acquire Terraform Global. In doing so, it will pick up 31 wind and solar power plants with 952 MW of capacity spread across Brazil, India, China, South Africa, Thailand, Malaysia, and Uruguay.

In addition, Brookfield Renewable will participate in the acquisition of a 51% stake in TerraForm Power Inc. (NASDAQ:TERP), which would remain a listed company sponsored by its parent Brookfield Asset Management. That deal values TerraForm at US$1.7 billion, or US$6.6 billion when including debt. The company currently controls a 3,000 MW portfolio of wind and solar assets concentrated in the U.S., though it owns assets in Canada, the U.K., and Chile.

Going forward, TerraForm will serve as Brookfield Renewable’s primary wind and solar operating company in North America and western Europe. Further, Brookfield plans to provide TerraForm with the right of first refusal for a pipeline of roughly 3,500 MW operating wind assets and developmental projects.

Overall, Brookfield Renewable expects to invest about US$500 million into these deals. Meanwhile, Brookfield Asset Management will provide TerraForm Power with a US$500 million acquisition facility, so it can make acquisitions, which will likely include drop-down transactions with Brookfield Renewable. As such, Brookfield Renewable will have additional capital to expand its hydropower portfolio as well as build off the TerraForm Global platform.

Lending a helping hand in Brazil

That transaction, however, is not the only renewable power deal Brookfield Renewable has in its pipeline. According to a report by Reuters earlier this month, the company is nearing a deal to buy a 30% stake in Brazil’s Renova Energia. Under the terms of that agreement, Brookfield Renewable would buy Light Energia’s 15.7% stake in the renewable company and then pump more equity into the entity, investing a total of US$258 million.

In acquiring a minority stake, Brookfield Renewable will gain access to Renova Energia’s growing renewable portfolio, which includes nearly 1,000 MW of wind, solar, and small hydro-generating capacity and an 11.66% stake in TerraForm Global.

Renova Energia owns a significant wind development pipeline, which could see the company nearly double its generating capacity by 2020. That said, it has been having trouble financing that growth due to Brazil’s troubled economy. However, this deal with Brookfield Renewable, along with the cash received from the TerraForm Global transaction, will significantly increase its capital resources so that it can finance its wind pipeline.

Investor takeaway

These deals do several things for Brookfield Renewable.

First, the company can put cash to work to buy assets at a discount, giving it the opportunity to boost cash flow immediately.

Second, the company can sell some of its wind assets to TerraForm Power, which would give it more money to invest in other growth opportunities.

Add it up, and Brookfield Renewable is significantly expanding its renewable power platform and its opportunity set, which should enable the company to deliver dividend growth towards the high end of its 5-9% annual range in future years.

The post This High-Yield Stock Could Deliver Powerful Future Dividend Growth appeared first on The Motley Fool Canada.

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Canadian Natural Resources Limited (TSX:CNQ)(NYSE:CNQ) made a big splash last week when it signed agreements to acquire several oil sands assets from Royal Dutch Shell plc (ADR) (NYSE:RDS.A)(NYSE:RDS.B) and Marathon Oil Corporation (NYSE:MRO).

Overall, the Canadian oil giant paid a massive $12.74 billion to bulk up its position in western Canada, which marked the largest acquisition in the company’s history. However, what was more impressive about the deal wasn’t the size of the purchase price, but the size of the discount the company got on the assets, which was well below the replacement cost.

Drilling down into the deal

Canadian Natural Resources’s acquisition is as complex as it is costly. As part of the deal, Shell and Canadian Natural Resources are jointly buying out Marathon Oil’s 20% stake in Athabasca Oil Sands Project (AOSP). From there, Canadian Natural Resources will acquire a 70% interest in AOSP, which includes the 126,000-barrel-per-day Jackpine Mine, the 154,000-barrel-per-day Muskeg River Mine, and the Jackpine Mine Expansion, which is an approved 100,000-barrel-per-day expansion.

The deal also includes a stake in the Scotford upgrader and the Quest Carbon Capture and Storage facility. Further, the company will acquire various producing and non-producing oil sands leases, including the Peace River Complex and Carmon Creek thermal in situ operations and the Cliffdale heavy oil field.

To pay for the deal, Canadian Natural Resources will issue Shell more than 97.5 million shares of stock valued at roughly $4 billion, and it will also make a combined upfront cash payment of $8.24 billion to Shell and Marathon Oil. Further, the company will pay Marathon Oil a US$325 million deferred payment in the first quarter of next year.

Price is what you pay; value is what you get

While the purchase price was a staggering $12.74 billion, what’s noteworthy about the deal is that Canadian Natural Resources could not replicate these assets for that price. In fact, most analysts believe that it would cost more than $20 billion to build these assets from scratch, implying the company bought them at a 40% discount to replacement costs.

Meanwhile, Canadian Natural Resources is getting a much better deal than Marathon Oil did when it initially bought its stake in the project for US$6.6 billion in 2007, because Marathon Oil will only receive US$2.5 billion for selling that stake today. That’s despite the fact that ASOP has expanded significantly since that time and now includes the Jackpine mine.

While Canadian Natural Resources will take on a hefty $9 billion of incremental debt to close this deal, its credit metrics will actually improve significantly. That’s because it is getting these assets for such a good value that the transaction will be immediately accretive to the company’s cash flow and earnings.

As a result, its book-to-capitalization ratio will fall to 41% at the end of this year and 35% next year. Further, its debt-to-EBITDA will improve from 2.4 times to 1.6 times over the next year at current oil prices, thanks in part to the upcoming completion of its Horizon oil sands expansion.

In other words, Canadian Natural Resources will get both bigger and better with this deal.

Investor takeaway

Canadian Natural Resources pounced on the opportunity to acquire a top-tier oil sands asset at a significant discount. That sets the company up to thrive even if oil prices remain low. Meanwhile, if oil prices improve in the years ahead, this deal will pay even bigger dividends for investors.

The post Canadian Natural Resources Limited Got a Steal of a Deal appeared first on The Motley Fool Canada.

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