2 Big Reasons to Avoid Crescent Point Energy Corp.

Crescent Point Energy Corp. (TSX:CPG)(NYSE:CPG) boasts a massive 6.7% yield, but has seriously underperformed its peers. Here’s why this is likely to continue.

| 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

Crescent Point Energy Corp. (TSX: CPG)(NYSE: CPG) is a favorite among dividend investors due to its large 6.7% yield. Over the past several years however, this yield has come at the expense of share performance, and investors holding since the beginning of 2012 would have only noted a 4.5% appreciation in share price.

This year, Crescent Point has returned about 7% including dividends, which is deeply lagging the almost 20% gain of the S & P/TSX Energy Index.

What explains these poor returns? I think it comes down to two major factors, both of which are reasons to be cautious when considering a purchase of Crescent Point shares.

1. Crescent Point has a strategy based on acquisitions and issuing equity

Crescent Point energy has a growth strategy centered on making expensive acquisitions, and paying with these acquisitions with equity, rather than out of cash flow. Recently, it acquired Lightstream Resources for $378 million, funded by issuing almost 20 million shares.

Rather than creating value for current shareholders by purchasing companies out of current cash flow and investing excess cash flow into maximizing production on current assets, Crescent Point is issuing equity and rapidly expanding its shares outstanding, which has a dilutive effect on Crescent Point’s earnings-per-share (EPS), and therefore on its share price.

Crescent Point’s share count has increased by 140% since 2009. To illustrate the effect of increasing share count on EPS, between 2012 and 2013, Crescent Point noted a 24% drop in net income. However, EPS dropped 35% for the same period, due to the fact that its shares outstanding increased by 16% during that period.

2. Crescent Point is having trouble attracting American investors

Crescent Point is seeing a steady decline in its American investor base, which it needs to grow its share price, since Canadian investors alone simply don’t generate enough demand to do it. U.S investors hold less than a quarter of the stock currently, down from 43% in 2012.

Crescent Point’s strategy so far has been to attract American investors using its large dividend yield, a strategy with questionable success. Many American investors are currently chasing the huge growth offered by U.S shale producers, and with Crescent Point focusing primarily on its dividend rather than production growth from cash flows, it may have difficulty attracting these investors.

Crescent Point is also attempting to attract American income investors, and CEO Scott Saxberg has compared the company to an MLP due its high yield and focus on distributing earnings to shareholders. This strategy is also problematic, due to the fact that there are many American oil and natural gas MLPs offering much higher yields (sometimes as high as 9%), with the favorable tax and currency benefits that MLPs offer.

Despite the high yield, Crescent Point Energy needs to expand its investor base beyond Canada and focus more on creating value for current shareholders. Until it does so, investors should be cautious, or risk the similar poor returns the last several years have brought.

Should you invest $1,000 in Crescent Point Energy right now?

Before you buy stock in Crescent Point Energy, 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 Crescent Point Energy 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 Adam Mancini 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 Energy Stocks

Investor wonders if it's safe to buy stocks now
Energy Stocks

Billionaires Might Sell U.S. Stocks and Buy This Canadian Stock to Avoid Tariff Risks

Billionaires might be worried about the future of U.S. stocks with the markets the way they are, and looking for…

Read more »

Offshore wind turbine farm at sunset
Energy Stocks

Got $500? Where I’d Invest it in This Green Energy Stock for Long-Term Sustainable Returns

This green energy company’s growing scale and focus on rewarding investors make it a top bet for investors looking for…

Read more »

golden sunset in crude oil refinery with pipeline system
Energy Stocks

TC Energy: Buy, Sell, or Hold in 2025?

TC Energy is up 30% in the past year. Are more gains on the way?

Read more »

golden sunset in crude oil refinery with pipeline system
Energy Stocks

Is Enbridge Stock (TSX:ENB) a Buy for its 5.9% Dividend Yield?

This solid dividend payer has the potential to help investors generate reliable passive income for decades.

Read more »

nugget gold
Dividend Stocks

Recession Stocks Are Back: Consider Buying the Dip This April

Recession stocks are back, and this one could be a solid winner.

Read more »

Person holds banknotes of Canadian dollars
Energy Stocks

Best Stock to Buy Right Now: Suncor vs Cenovus?

Suncor stock's 4.2% dividend yield vs Cenovus Energy's growth potential: Tariff-proof safety or growth gamble?

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

How to Earn $500/Month in Tax-Free Income With Your TFSA

Canadians can earn $500 or a desired tax-free income every month by saving and investing through the TFSA.

Read more »

how to save money
Energy Stocks

1 Canadian Stock Ready to Surge in 2025 and Beyond

This Canadian stock has seen significant growth, but more could come for 2025 and beyond.

Read more »