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A Steady Paycheck With Enerplus
Looking for exposure to a well-managed sovereign nation, the energy sector and a huge dividend yield? Search no further than Enerplus Corp (NYSE:ERF), an oil and gas operator based out of Calgary, that pays a high dividend yield.
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Oh, Canada
There's no shortage of evidence exhibiting the dearth of leadership in the western world right now. The European Union is vacillating between cohesion and disunity and partisanship has never been greater in the U.S. Meanwhile, Canada is quietly demonstrating how government can work judiciously, to get business going again. Canada regained all of the 428,000 jobs lost in the 2008-2009 crisis, by January of this year. A massive gain of 60,900 jobs during September brought Canada's relatively low unemployment rate down near 7.1%. (For more on the unemployment rate, see The Unemployment Rate: Get Real.)
Of course, comparing Canada to the E.U. or the U.S. is not an apples to apples comparison. Moreover, Canada is still exposed to the same global problems impacting world economies. The fact remains that Canada's fiscal and economic situation is in better shape and that bodes well for their domestic companies. The world's 10th largest economy managed to avoid much of the over-leverage that felled the U.S., and the booming commodity export business has sustained their economy, amid a torrent of global upheaval. GDP grew 0.2% from July to August, as strong oil and gas extraction continues to underpin the stabilizing Canadian economy.
Sell Off Powers Big Dividend Yield
Even though Canada's economy had steadied, thanks in large part to the oil and gas industry, several large-cap Canadian energy stocks preceded this summer's global sell off. Big names like Canadian Natural Resource Ltd (NYSE:CNQ) and Suncor Energy Inc. (NYSE:SU) were hit very hard. Lower tier companies with big payouts, like Enerplus, Penn West Petroleum Ltd (NYSE:PWE) and EnCana Corporation (NYSE:ECA), peaked in the early spring, as well, and trended lower until the October bottom. The result has been very cheap oil and gas stocks with outstanding dividend yields. (For related reading, see Peak Oil: What To Do When The Wells Run Dry.)
Enerplus pays such an abnormally high yield (7.6%), due to former status as a royalty trust. There is some risk to the monthly 18 cent per share dividend payment, as a slight adjustment may be necessary to better align with somewhat volatile cash flows. If oil prices remain elevated, the dividend could be secure. Look to Nexen Inc. (NYSE:NXY), another beaten down Calgary-based oil and gas producer. Nexen's third quarter earnings report bode well for Enerplus' dividend. Thanks to higher realized prices, earnings came in above expectations, despite production problems that have recently plagued a lot of energy exploration firms. Enerplus has the productivity capacity and huge reserves, particularly in the Bakken and Marcellus shale regions, to capitalize on higher oil prices. Improving drilling production helped revenues grow 16% last quarter, compared to the year ago period, and earnings soared 250%. Enerplus does actively hedge to reduce exposure to volatile energy prices.
Another good option in the high yield Canadian oil and gas production group is Penn West. Like Enerplus, Penn West is a former royalty trust that pays a big dividend yield at 5.7%, with the added benefit of a relatively cheap P/E multiple of 17. Penn has oil sands properties, in addition to light oil drilling projects.
The Bottom Line
The high yield, coupled with dramatically improved valuations, makes these companies extremely attractive options, for investors looking at fixed income and the opportunity for capital gains. It doesn't hurt that Canada has its financial house in order. Consider the negative impact that sovereign debt problems across the Atlantic are having on European equities; it's important to recognize that Canada is highly leveraged to the U.S. and the global economy. A double dip would crimp energy demand and Canadian oil and gas stocks in turn. If global markets stabilize and energy demand remains strong, there's value and a nice fixed paycheck to be earned with these oil and gas producers. (For more on capital gains, see Capital Gains Tax 101.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
At the time of writing, Matt Cavallaro did not own shares in any of the companies mentioned in this article.
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.
Oh, Canada
There's no shortage of evidence exhibiting the dearth of leadership in the western world right now. The European Union is vacillating between cohesion and disunity and partisanship has never been greater in the U.S. Meanwhile, Canada is quietly demonstrating how government can work judiciously, to get business going again. Canada regained all of the 428,000 jobs lost in the 2008-2009 crisis, by January of this year. A massive gain of 60,900 jobs during September brought Canada's relatively low unemployment rate down near 7.1%. (For more on the unemployment rate, see The Unemployment Rate: Get Real.)
Of course, comparing Canada to the E.U. or the U.S. is not an apples to apples comparison. Moreover, Canada is still exposed to the same global problems impacting world economies. The fact remains that Canada's fiscal and economic situation is in better shape and that bodes well for their domestic companies. The world's 10th largest economy managed to avoid much of the over-leverage that felled the U.S., and the booming commodity export business has sustained their economy, amid a torrent of global upheaval. GDP grew 0.2% from July to August, as strong oil and gas extraction continues to underpin the stabilizing Canadian economy.
Sell Off Powers Big Dividend Yield
Even though Canada's economy had steadied, thanks in large part to the oil and gas industry, several large-cap Canadian energy stocks preceded this summer's global sell off. Big names like Canadian Natural Resource Ltd (NYSE:CNQ) and Suncor Energy Inc. (NYSE:SU) were hit very hard. Lower tier companies with big payouts, like Enerplus, Penn West Petroleum Ltd (NYSE:PWE) and EnCana Corporation (NYSE:ECA), peaked in the early spring, as well, and trended lower until the October bottom. The result has been very cheap oil and gas stocks with outstanding dividend yields. (For related reading, see Peak Oil: What To Do When The Wells Run Dry.)
Another good option in the high yield Canadian oil and gas production group is Penn West. Like Enerplus, Penn West is a former royalty trust that pays a big dividend yield at 5.7%, with the added benefit of a relatively cheap P/E multiple of 17. Penn has oil sands properties, in addition to light oil drilling projects.
The Bottom Line
The high yield, coupled with dramatically improved valuations, makes these companies extremely attractive options, for investors looking at fixed income and the opportunity for capital gains. It doesn't hurt that Canada has its financial house in order. Consider the negative impact that sovereign debt problems across the Atlantic are having on European equities; it's important to recognize that Canada is highly leveraged to the U.S. and the global economy. A double dip would crimp energy demand and Canadian oil and gas stocks in turn. If global markets stabilize and energy demand remains strong, there's value and a nice fixed paycheck to be earned with these oil and gas producers. (For more on capital gains, see Capital Gains Tax 101.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
At the time of writing, Matt Cavallaro did not own shares in any of the companies mentioned in this article.
by
Matt Cavallaro
Matt Cavallaro is Senior Equity Analyst for BetterTrades. Matt previously worked in Merrill Lynch's private client group and as an analyst with Laidlaw & Company, a full-service investment banking and brokerage firm. Matt graduated from Emory University with a B.A. in Economics, and is a Chartered Financial Analyst Candidate and Chartered Market Technician Affiliate.
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