For income investors, equity investing has become a two-edged sword.
On the plus side, many stocks are offering their best yields in years. You can fill your portfolio with shares the likes of BCE Inc. (BCE-T; yield 9 per cent), Capital Power Corp. (CPX-T, 6.75 per cent), and Brookfield Renewable Partners LP (BEP.UN-T; also 6.75 per cent) and watch the dividends roll in.
Unfortunately, you’ll also see the bottom line wash out, as many high-yield stocks are trading near their lowest levels since before the pandemic. After two years of watching portfolio values erode, many people are fed up – and nervous.
One solution is to add some energy stocks to your list. Many offer both strong cash flow and an attractive total return.
I know some people don’t want to encourage fossil fuel consumption by investing in energy companies. I respect that view, but not everyone shares it. If you’re willing to include conventional energy stocks in your portfolio, here are some ideas from my Income Investor recommended list. Stock prices are as of Friday’s close.
Peyto Exploration and Development Corp. (PEY-T). This Alberta-based natural gas producer was first recommended in December, 2022, at $13.30. It is currently trading at $15.19 and pays a monthly dividend of 11 cents ($1.32 a year) to yield 8.7 per cent. The company reported earnings of $239-million ($1.62 per diluted share) in 2023.
Freehold Royalties Ltd. (FRU-T). Freehold is an oil and gas royalty company with assets mainly in Western Canada, although it is expanding in the United States. It was recommended in October, 2021, at $12.10 and is now trading at $14.51. The monthly dividend is 9 cents a share ($1.08 a year) for a yield of 7.4 per cent. The company reported funds per share from operations of $1.59 in 2023.
Canadian Natural Resources Ltd. (CNQ-T). This is one of the giants of Canada’s oil and gas industry. It was recommended in May, 2019, at $37.96 and now trades at $109.04. So, investors who bought at the time of our original recommendation have a capital gain of 187 per cent, plus they’re receiving quarterly dividends of $1.05 ($4.20 a year). That’s a current yield of 3.85 per cent. Those who bought when CNQ was first recommended have a yield of 11.1 per cent.
Keyera Corp. (KEY-T). Keyera supplies a variety of services to the natural gas industry, including transportation, storage and marketing. It has been on our recommended list since 2004, at a split-adjusted price of $6.03. It is currently trading at $34.69. The quarterly dividend is 50 cents ($2 a year) to yield 5.8 per cent. The company reported basic net earnings per share of $1.85 in 2023 and distributable cash flow of $3.73 per share.
Gibson Energy Inc. (GEI-T). This is another mid-stream energy infrastructure company that is involved in the storage, optimization, processing, and gathering of crude oil and refined products. It was recommended in October, 2021, at $23 and is trading at close to the same level now. The dividend was increased by 5 per cent this month to 41 cents per quarter ($1.64 a year) to yield 7.15 per cent. The company reported a dividend payout ratio of 61 per cent in 2023, based on distributable cash flow of $385.8-million.
It’s important to note that these companies use different measures for calculating payout ratios. The gold standard is to measure dividends against net earnings, but few do that. Perhaps it’s time for the regulators to take a fresh look at reporting standards so that investors could easily compare apples with apples.
Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.
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Gordon Pape