The 3 Biggest Dividend Yields on the TSX 60: Are They Truly Sustainable?

Find out whether the monster dividend yields of Penn West Petroleum Ltd. (TSX: PWT)(NYSE:PWE), Crescent Point Energy Inc. (TSX:CPG)(NYSE:CPG), and Canadian Oil Sands Ltd. (TSX:COS) are sustainable if oil prices keep falling.

| More on:

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

The S&P TSX 60 Index contains Canada’s 60 largest publicly listed companies, which among them possess some of the juiciest dividend yields available to investors. It is no surprise that, after a massive ramp-up of investment in the energy patch over the last two years and the growing popularity of the dividend plus growth model, the three largest yields are paid by energy companies.

But with many of those high dividend yields predicated on growing crude production and higher oil prices, they are now under threat, with crude softening further over recent days.

Let’s take a closer look at these high yields to determine which will survive.

1. Penn West Petroleum Ltd.

Troubled intermediate oil producer Penn West Petroleum Ltd. (TSX: PWT)(NYSE: PWE), with a dividend yield of 7.4%, pays the juiciest yield in the S&P TSX 60 Index. The company recently emerged from an accounting probe in good health, so some analysts claim now is the time to buy. But it is still plagued by problems, which, in conjunction with softer crude prices, are threatening its dividend.

Penn West continues to bleed red ink as it battles to boost higher-margin light oil production, deleverage its balance sheet by divesting non-core assets, and reduce costs. These efforts continue to negatively impact Penn West’s oil production, which has fallen for the last eight consecutive quarters. Its operating margin, or netback, of $39.48 per barrel of crude sold is among the lowest in the patch and leaves little room to absorb softer crude prices.

Of greater concern for dividend sustainability is that after deducting sustaining capital expenditures and debt repayments from operating cash flow, there is a working capital shortage. This shortage is currently funded by the proceeds of asset dispositions, but this can’t continue indefinitely. With crude prices continuing to soften and negatively affecting operating cash flow, Penn West’s only option may be to cut the dividend.

2. Crescent Point Energy Corp.

The second slot goes to Crescent Point Energy Corp. (TSX: CPG)(NYSE: CPG), which pays a monster dividend yield of 6.8%. But with its payout ratio exceeding net income by around six times, there are growing concerns about its sustainability, especially in an operating environment dominated by softer crude prices.

However, unlike Penn West, Crescent Point is not struggling under the weight of a myriad of problems. It has a clean balance sheet and a low degree of leverage, with net debt a mere 1.3 times operating cash flow.

More importantly, with a portfolio of quality low decline rate assets holding in excess of 640 million barrels of crude, Crescent Point can easily boost production to make up for declining revenues due to lower crude prices. This in conjunction with its healthy netback of $54.75 per barrel of oil sold indicates there is sufficient room for it to absorb softer oil prices while maintaining cash flow and sustaining its dividend.

3. Canadian Oil Sands Ltd.

The owner of the largest interest in the Syncrude project, Canadian Oil Sands Ltd. (TSX: COS) remains a firm favourite among income-focused investors with a massive 6.8% yield. What makes it more appealing is that, unlike Penn West or Crescent Point, its payout ratio of 86% is well below the 100% mark, indicating that it is truly sustainable.

But softer crude prices coupled with a range of internal issues are potential problems for the dividend. Production outages caused by machinery failures are impacting revenue, while the complex machinery that converts bitumen to synthetic light sweet crude is costly to maintain.

This is causing operating costs to rise and will have an impact on margins when coupled with lower crude prices. These issues as well as ongoing production outages will have a negative impact on cash flows and profitability, and the payout ratio could rise to over 100%. But Canadian Oil Sands’ low degree of leverage, with net debt only 1.6 times cash flow and solid liquidity, leaves it well positioned to cover any shortfall.

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

Before you buy stock in Enbridge, 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 Enbridge 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 Dividend Stocks

dividend growth for passive income
Dividend Stocks

Why I’d Invest in Canadian Value Stocks for Both Stability and Growth

Three Canadian value stocks are buying opportunities for investors looking for stability and growth.

Read more »

investment research
Dividend Stocks

Got $15,000? 3 Blue-Chip Stocks Every Canadian Should Consider

Here's why investing in blue-chip TSX stocks such as CNQ and CNR should derive outsized gains in 2025 and beyond.

Read more »

protect, safe, trust
Dividend Stocks

Where I’d Allocate $20,000 in 2 Safer High-Yield Dividend Stocks for Retirement Needs

Here are two safer, high-yield dividend stocks I'm looking at for my retirement needs.

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

3 Reasons I’m Considering Enbridge Stock for a $5,000 Investment This April

I'm considering Enbridge stock to provide some defensive appeal and a juicy dividend to my long-term portfolio.

Read more »

monthly desk calendar
Dividend Stocks

A 9.2% Dividend Stock Paying Cash Every Single Month

With one of the highest dividends out there, this dividend stock deserves attention in your portfolio.

Read more »

Happy golf player walks the course
Dividend Stocks

Build a Powerful Passive Income Portfolio With Just $20,000

If you are worried that the bear market could reduce your savings, these stocks can build a powerful passive income…

Read more »

Hand Protecting Senior Couple
Dividend Stocks

How I’d Use My $7,000 TFSA Contribution to Start Retirement Planning

These TSX stocks have solid fundamentals and are well-positioned to deliver significant tax-free total returns over time.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

How to Turn Your TFSA Into a Gold Mine Starting With Only $10,000

It doesn't have to be complicated or scary. You can turn any portfolio into a major gold mine.

Read more »