Oil stocks will generate dividends and payouts through 2023: Scotiabank

Dividends and share buybacks were front and center as the biggest names in the sector released financial results in recent weeks. (Reuters/Todd Korol)

Canada’s oil sector will continue to generate dividends and payouts in 2023. Analysts at Scotiabank Global Equity Research say high crude prices and disciplined spending have given companies a “significant margin of safety.” to continue rewarding shareholders.

Those awards were front and center as the biggest names in the industry released financial results in recent weeks.

Cenovus Energy (CVE.TO)(CVE) announced plans to triple its base dividend when it released its first quarter results on April 27. Suncor Energy (SU.TO)(SU) announced on May 9 that it would increase its dividend to the highest level in company history as of June 3. Its energy peers, including Crescent Point Energy (CPG.TO)(CPG), Enerplus (ERF.TO)(ERF), Paramount Resources (POU.TO) and Tourmaline Oil (TOU .TO), also softened their benefits for investors. shareholders by announcing the results of the first quarter.

North American benchmark oil West Texas Intermediate (WTI) (CL=F) traded above US$115 a barrel on Wednesday. In a note to clients, Scotiabank analyst Jason Bouvier estimated the median oil price for producers at US$44 a barrel in 2023, up a dollar from a year earlier.

“Generally, the $1 a barrel increase in WTI breakeven prices was driven by higher oil sands royalties, increased dividends and cost inflation,” Bouvier wrote, noting a “margin of safety” of USD 65 per barrel at current prices.

“The industry’s focus on capital discipline and operational efficiency is likely to support further increases in dividends and share buybacks,” he wrote. “We expect balance sheet improvements to continue, but once targets are met, we expect special/variable dividends to be launched (likely in 2023).”

Bouvier says companies with high free cash flow yields, lower payouts, and those approaching their debt targets have the greatest potential to increase their dividend. These include Cenovus, Imperial Oil (IMO.TO) (IMO) and Ovintiv (OVV.TO)(OVV) among large-cap companies, as well as Crescent Point and Vermilion Energy Inc. (VET.TO)( VET) among small to mid-cap producers.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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Felix J. Dixon