Why Crescent Point Energy Corp Belongs in Every Income Investor’s Portfolio

Recent solid results underscore why Crescent Point Energy Corp. (TSX:CPG)(NYSE:CPG) is a desirable addition to any portfolio.

| More on:
The Motley Fool

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Light and medium crude producer Crescent Point Energy Corp (TSX: CPG)(NYSE: CPG) continues to perform strongly and remains a favourite among income-hungry investors because of its monster dividend yield of 6.3%. Crescent Point’s latest quarterly results were particularly solid, confirming that the company continues to go from strength to strength.

These results also confirm that its dividend is still sustainable despite the claims of naysayers, with Crescent Point’s payout ratio remaining well above 600%. Let’s take a closer look at the latest results and see what they tell us.

Solid Q2 results bode well for a strong full-year performance

Crude production continued to climb for the third successive quarter, up a healthy 5% compared to the first quarter of 2014 and 17% compared to the equivalent quarter in 2013. The key driver for this is the company’s history of successfully identifying and completing accretive acquisitions.

These transactions included the May acquisition of CanEra, which gave Crescent Point a large Torquay land holding with crude production of 10,000 barrels daily. The other significant acquisition was the Saskatchewan Viking oil assets of Polar Star Canadian Oil and Gas in June, adding 2,800 barrels of crude production daily.

As a result, Crescent Point revised its 2014 guidance upwards to 135,000 barrels of crude daily, or 13% higher than its total 2013 crude production.

Notably, Crescent Point’s production remains heavily weighted towards higher-margin oil and natural gas liquids, with these making up 91% of total production during the second quarter. This is an impressive achievement, particularly with natural gas prices remaining volatile and continuing to soften as global supply grows.

Crescent Point Energy has one of the best production mixes in the patch, superior to many of its peers, including Talisman Energy Inc. (TSX: TLM)(NYSE: TLM), which has crude liquids making up only 39% of its total production. It is also superior to Husky Energy Inc.’s (TSX: HSE) 70% liquids production for the same period, as well as Lightstream Resources Ltd’s (TSX: LTS) 80% and Penn West Petroleum Ltd’s (TSX: PWT)(NYSE: PWE) 64%.

This allows Crescent Point to consistently generate a healthy margin, or netback for each barrel of crude it produces, ensuring that both its cash flow and bottom line will continue to grow. Crescent Point’s netback also spiked a healthy 4% quarter over quarter and 8% year over year for the same period to $54.75 per barrel, which is among the best netbacks in the patch.

This figure is significantly higher than the average of $44 per barrel for oil producers operating in North America, as well as higher than many of its peers. For the same period, Talisman reported a dismal $27.18 per barrel, which is half of Crescent Point’s margin per barrel of crude produced, while Husky’s was $48.70, Lightstream’s was a healthy $57.49, and Penn West’s was a dismal $36.67 per barrel.

All of these factors contributed to significant growth in Crescent Point’s bottom line, with earnings per share for the quarter tripling compared to the previous quarter and jumping a healthy 26% year over year to $0.24 per share. This underscores the strength of Crescent Point’s operations and the quality of its assets in an operating environment where industry fundamentals continue to improve.

Despite the naysayers, the dividend yield remains sustainable

By the end of the last quarter, Crescent Point’s funds flow from operations had grown a healthy 7% quarter over quarter and 18% year over year to $636.7 million, and it this strong growth in funds flow that continues to support the sustainability of its dividend.

The rationale is that while the accepted method for calculating the dividend payout ratio is to divide dividends paid by net income, oil exploration and production is a capital-intensive industry where cash is king. Furthermore, the calculation of net income includes a number of non-cash items, distorting the true representation of the amount of cash available.

Thus, a more reliable indicator of dividend sustainability is to divide total dividends paid by funds flow from operations, which gives Crescent Point a sustainable payout ratio of 46%.

Future outlook remains positive

Despite crude prices softening somewhat of late, I expect Crescent Point Energy to continue performing strongly, with its solid production growth underpinning further funds flow growth and the sustainability of its dividend.

This is further supported by the strength of Crescent Point’s balance sheet. It has a low degree of leverage, with net debt of merely 1.2 times its funds flow from operations, which is one of the lowest ratios in the patch. This gives it considerable operational and financial flexibility, as the company can increase its debt in order to make further accretive acquisitions. As a result, I think that Crescent Point should be an integral addition to any income-focused portfolio.

Should you invest $1,000 in Fortis right now?

Before you buy stock in Fortis, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Fortis wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt Smith has no position in any stocks mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Investing

analyze data
Dividend Stocks

Market Correction Opportunity: 2 Canadian Dividend Stocks for TFSA Income

These stocks pay attractive yields today for income investors

Read more »

oil pump jack under night sky
Dividend Stocks

Here’s How Many Shares of TRP Stock to Own for $5,000 in Dividends, Even if Energy Prices Swing

Want major income, even if energy prices fluctuate, this could be a strong investment.

Read more »

A meter measures energy use.
Dividend Stocks

Here’s How to Earn $500/Month From Fortis Stock, Even With an Interest Rate Freeze

Fortis stock is a strong investment and can continue to be one even with interest rates remaining high.

Read more »

Person slides down a stair handrail
Stock Market

Beyond Steel and Aluminum: Unveiling the Hidden Tariff Casualties in Canada

While aluminum and steel tariffs grab headlines, Canadian investors overlook these real tariff victims: apparel, transport, and telecom stocks bleeding…

Read more »

Dividend Stocks

Real Estate Exposure Without Property Ownership: 3 Canadian REITs Worth Considering

These top Canadian REITs are trading off their highs and offer compelling dividend yields, making them three of the best…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Investing

Poilievre Proposes a $5,000 TFSA Top-Off: 2 TSX Stars to Watch

I'd buy Alimentation Couche-Tard (TSX:ATD) and another top stock if I had an extra $5,000 in TFSA funds.

Read more »

Pile of Canadian dollar bills in various denominations
Investing

Tiny but Mighty, These TSX Small-Caps Have Major Growth Potential

These small-cap stocks have strong fundamentals and promising growth prospects. Moreover, they are trading cheap.

Read more »

An investor uses a tablet
Dividend Stocks

Tariff Trade War: A Few Solid Stocks to Buy Now

These stocks have reliable operations, offer attractive dividends and are trading off their highs, making them three of the best…

Read more »