Don’t Panic Over Crescent Point Energy Corp.’s Falling Price

Crescent Point Energy Corp (TSX:CPG) (NYSE:CPG) is a great example of why a falling stock price doesn’t mean it’s time to sell.

| 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

Usually, greater risk comes with a higher-yielding company such as Crescent Point Energy Corp (TSX:CPG)(NYSE:CPG). That’s why the market allows its yield to be higher than the average yield. Even before the oil price drop, Crescent Point yielded 6.5%, higher than the average yield of 3-4% of solid dividend companies.

Just how should investors view Crescent Point? Here’s my experience.

My initial goal of buying Crescent Point is to receive a high income that I believe to be safe. So far, I have averaged down once, and my yield on cost is now over 10%. Compare that to Crescent Point’s yield of 13.9% today.

My combined shares are down by 27% because Crescent Point Energy continues to make new lows and there’s no end in sight. After the oil price fell from over US$100 to below US$50, it hasn’t shown any signs of recovery.

Is Crescent Point’s dividend still safe?

Since paying a monthly dividend from September 2003, Crescent Point has not cut it once, which is almost 12 years of continuous dividend payments. And on July 2, the company’s guidance for 2015 includes the $2.76 dividend with higher production of oil and natural gas liquids, and natural gas. At times of low prices, higher production volumes increases the safety of the dividend.

Its hedging program also provides cash flow stability. Fully 54% of oil production for the second half of 2015 is hedged at $87.50 per barrel. Crescent Point is not overly reliant on debt, with a debt-to-cap ratio of 26%. Its recent acquisitions of Legacy Oil + Gas Inc. and Coral Hill Energy Ltd. are accretive on production and cash flow. So, I believe there’s no immediate danger to Crescent Point’s dividend.

How to reduce risk?

I will limit my Crescent Point position to no more than 2.5% of my portfolio. Further, I’m averaging into my position instead of buying in a lump sum so that I can choose my buy price and choose how much to buy manually. This also means I’m not automatically reinvesting the dividends that offers a 5% discount. By collecting the dividend, I can use it to diversify into other investments to reduce concentration risk.

If you’re looking for a high yield investment in Crescent Point, I think its shares are cheap under $20. That is a discount to its book value of $22.55. Oil price remains low and volatile, so Crescent Point is not for the faint-hearted. For now, I will sit back and take in the monthly juicy dividend.

Just Released! 5 Stocks Under $50 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $50 a share.

Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.

Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

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 Kay Ng owns shares of Crescent Point Energy Trust Units.

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

Blocks conceptualizing the Registered Retirement Savings Plan
Dividend Stocks

RRSP Investors: 3 Canadian Dividend Stocks to Buy on Dips

These stocks have strong track records of dividend growth and now trade at discounted prices.

Read more »

concept of real estate evaluation
Dividend Stocks

Beyond Real Estate: These TSX Income Generators Could Deliver Superior Passive Income for Canadians

These two TSX dividend stocks could offer Canadian investors a reliable income stream and strong long-term upside, without relying on…

Read more »

Confused person shrugging
Dividend Stocks

Better TSX Dividend Stock to Own: Manulife or Sun Life?

While Sun Life stock has outpaced Manulife in the last two decades, which dividend-paying insurance giant is a good buy…

Read more »

coins jump into piggy bank
Dividend Stocks

How to Use Your TFSA to Earn $1,057/Year in Tax-Free Income

Investing $5,000 in each of these high-yield dividend stocks can help you earn over $1,057 per year in tax-free income.

Read more »

Man in fedora smiles into camera
Dividend Stocks

How I’d Build a $20,000 Retirement Portfolio With These 3 TSX Dividend All-Stars

If you're worried about returns and want to focus on dividends, these dividend stocks are the first to consider.

Read more »

View of high rise corporate buildings in the financial district of Toronto, Canada
Dividend Stocks

If I Could Only Buy and Hold a Single Canadian Stock, This Would Be It

Here's why this high-quality defensive growth stock is one of the best Canadian companies to buy now and hold for…

Read more »

Concept of multiple streams of income
Dividend Stocks

3 Safe Dividend Stocks for Retirees

These three Canadian stocks are ideal for retirees due to their solid cash flows, consistent dividend growth, and healthy growth…

Read more »

dividends can compound over time
Dividend Stocks

3 Canadian Market Leaders Where I’d Invest $10,000 for Sustained Performance

Market leaders like Alimentation Couche-Tard Inc (TSX:ATD) are worth an investment.

Read more »