Here are two very conservative energy stocks with dividends that should satisfy income-oriented investors.
Canadian Utilities’ (TSX—CU) unregulated businesses weighed on its financial results in the fourth-quarter. But most of the company’s businesses are regulated, and these have continued to do well.
Nonetheless, the unregulated businesses caused CU to fall short of expectations for the quarter. The consensus estimate had called for the company to earn $0.62 a share (adjusted), the same as it earned in the fourth quarter of 2016. But it actually earned $0.60.
CU is engaged in electricity, pipelines and liquids, and retail energy businesses.
Despite the unfavourable earnings comparisons for the fourth quarter, the company did better for the full year. For the year ended Dec. 31, 2017, CU made $602 million (adjusted), or $2.23 a share, compared with $590 million, or $2.21 a share, in 2016.
Adjusted electricity segment earnings declined 1.2 per cent to $397 million, mainly due to lower contributions from forward sales, increased business development expenses and a planned major outage at the Sheerness Thermal power plant located northeast of Calgary.
But pipelines and liquids earnings rose 7.1 per cent to $273 million, thanks to continued capital investment and growth in rate base, or the value of property on which a utility is allowed to earn a specified rate of return.
CU has raised its quarterly dividend yet again, by 10 per cent to $0.3933 a share.
These past five years, CU has increased the quality of its earnings base. The company has invested over $9 billion in regulated utility and long-term contract operations. The regulated utility portion now makes up 99 per cent of adjusted earnings, up from 62 per cent in 2012. Because they’re highly contracted and regulated, these earnings provide the foundation for future dividend growth.
Earnings should rise to $2.37 a share in 2018. The stock trades at just around 14.3 times that estimate. The annual dividend of $1.57 a share yields 4.6 per cent. Buy.
Suncor makes two purchases
Suncor Energy (TSX—SU; NYSE—SU) has been on the acquisition trail. The company has agreed to acquire Mocal Energy’s five-per-cent interest in the Syncrude joint venture for $920 million. The transaction, which will increase Suncor’s share in the Syncrude joint venture to 58.7 per cent, reflects management’s confidence in the long-term future, high quality and value of the oil sands. It will add 17,500 barrels a day of high-quality light sweet synthetic crude capacity to the company’s portfolio.
Suncor has also announced it will acquire a 17.5-per-cent participating interest in the Fenja Development in the Norwegian Sea from Faroe Petroleum for about $68 million. The transaction is expected to provide profitable growth in an area where Suncor has existing knowledge, expertise and assets.
Both acquisitions are expected to close in the second quarter.
Meanwhile, Suncor finished 2017 on a strong note. For the year ended Dec. 31, 2017, Suncor’s operating earnings were $3.2 billion, or $1.91 a share, compared with a loss of $83 million, or $0.05 a share, in 2016.
Management has approved a 12.5-per-cent increase in the quarterly dividend to $0.36 a share, and a further $2-billion share buyback program.
Suncor is a core portfolio holding in the energy sector. Buy.
This is an edited version of an article that was originally published for subscribers in the March 16, 2018, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.
Money Reporter, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846