I have been thinking that I ‘need’ to add some energy stocks in my portfolio, given the huge rise in commodity prices that have occurred over the past few years. I was listening to a radio show this morning and the topic of day was energy stocks and the guest spoke about the fact that energy stocks were only going to go up. Although he did not suggest any stocks in particular due to rules his compliance officer enforces, he did mention that he is bullish on the oil sands projects.
Sidebar – Before you jump all over me please note that I rarely act on anything I hear on the radio or read in the newspaper. I have spoken about this a couple of time on this blog – acting blindly on advice from ‘gurus’ is never a good idea.
My dividend-reinvesting broker (Canadian Shareowners Association) offers a couple of different choices in the energy sector. They include:
| Investment | Dividend Yield |
| iUnits S&P/TSX Canadian Energy Index | 0.36% |
| Enbridge | 2.88% |
| Encana | 0.63% |
| Imperial Oil | 0.90% |
| Petro-Canada | 0.94% |
| Suncor Inc | 0.41% |
First thing I noticed on this cursory scan was the super low dividend yields. The only one that broke 1% was Enbridge, which is a pipeline company. In the sector recommended by the radio guy, Suncor would be the option as they have huge stakes in the oil sands in Fort McMurray. Not very exciting in terms of a dividend yield.
The next thing I checked was the track record in terms of dividend growth. The two companies that showed up on the Mergent Dividend Achiever list were Enbridge and Imperial Oil.
Based on this initial scan, I am going to do some initial research on Enbridge, Imperial Oil, and Suncor (based on the radio guy’s comments) to make sure the fundamentals are sound. As I don’t have the funds available right now to purchase another position I am going to just complete the due diligence. I will update you on the results of this shortly. If any of you have any comments about these three stock, please comment. I would greatly appreciate it.
I shouldn’t talk down on the energy sector, given that I own the CIBC Energy mutual fund, but I have to say the run-up in price this year makes me nervous. Is there reason to believe oil prices will continue to rise, or are commodity markets wholly unpredictable? Anyways the other thing I wanted to point out is that those dividends do look tiny, but it’s possible they were respectable yields a year ago, and just haven’t risen along with the price. Imperial Oil’s current dividend would be a 1.4% yield with their price from January. Perhaps with the increased earnings from the oil price spike you can expect dividends to rise in the next quarter…
That is a great point on the dividend yield. I am willing to bet that that is most definately the case. When I look at the stocks in more detail, I am of course going to look at valuation – if things seem out of whack then I am going to be very hesitant.
I realize it’s not in your list, but if you are looking for a higher dividend yield and a more direct tie to commodity prices, you may consider some of the oil and gas trusts. You may have different options than we do in the US on the NYSE, but I know that the following are traded in Canada:
1. Canadian Oil Sands Trust (COS-UN)
http://www.cos-trust.com/
2. Harvest Energy Trust (HTE.UN)
http://www.harvestenergy.ca/
3. Pengrowth
http://www.pengrowth.com/
Just some stuff to think about.
Disclaimer: I own shares of the HTE units that are traded on the NYSE.
Being a conservative guy, I choose Endbridge and bought 200 yesterday to hold long term. The dividend is good, it’s on the Mergent list for increasing dividends, and being a pipeline, they are relatively immune to oil prices. It is more a utility than a pure oil company but they are expanding and have plans for new lines. I don’t have the skills to do financial analysis of companies, so I rely on several sources to concur. I also like the trusts – making out like a bandit with Enerplus and Harvest.
Steamboy, congrats on your purchase. It is tough to find the time to do the full analysis but it sounds like you have a pretty good understanding of the company. Many people have done well with Enbridge.
I am bearish on energy stocks. The earnings of these companies is entirely dependent on oil prices. Oil prices are high now, but they might just as easily fall to $45 as rise to $70.
Investors are chasing performance yet again loading up on energy sector mutual funds. My guess is once again, the energy sector is going to underperform.
Well, everything so far is just a guess. Maybe a good guess, but still a guess. You may want to diversify into energy for portfolio diversification purposes. Energy does have very low correlation with other sectors.
You are looking for good dividend yields which are difficult to find in Canada. IMHO, you should consider US listed stocks: XOM yields 2% and BP, TOT, Royal Dutch Shell all yield more than 3%.
Thought I’d might make a post out of my comment:
http://canadiancapitalist.blogspot.com/2005/10/searching-for-dividends-in-oil-patch.html
Cheers!