A rebound in the energy sector has investors wondering which names might be attractive picks for the rest of 2018 and beyond.
Let’s take a look at TransCanada Corporation (TSX:TRP)(NYSE:TRP) and Crescent Point Energy Corp. (TSX:CPG)(NYSE:CPG) to see if one is more attractive today.
TransCanada
TransCanada reported strong results for Q1 2018. Earnings came in at $870 million, or $0.98 per share, compared to $698 million, or $0.81 per share, for the same period the previous year.
Contributions from $7 billion in new projects more than offset the loss of revenue from the sale of the company’s Northeast Power assets in the United States.
Going forward, TransCanada is working through $21 billion in near-term commercially secured developments that should boost revenue and cash flow enough to support annual dividend increases of at least 8% through 2021.
In addition, the company has $20 billion in longer-term projects under consideration, including Keystone XL, the Bruce Power Life extension program, and Coastal GasLink. A green light for any of these developments could trigger an upward revision to the dividend-growth guidance.
TransCanada currently pays a quarterly dividend of $0.69 per share for an annualized yield of 5%.
The stock has bounced from $51 to $55 per share in the past month but is still down from $64, where it was at this time last year.
Crescent Point
Crescent Point was a $45 stock and paid a monthly dividend of $0.23 per share back in 2014, when oil traded for US$100 per barrel. Unfortunately, the downturn lasted longer than most people expected, and Crescent Point was forced to trim the payout to $0.10 and then again to $0.03, where it currently stands.
The stock hasn’t fared much better. At the time of writing, Crescent Point can be picked up for $10 per share, which isn’t too far off the 12-month low of $8.
Crescent Point fans are surprised the stock isn’t trading at a higher level, especially given the rebound in WTI oil from US$42 last summer to recent highs above US$70 per barrel. The company has an attractive asset base and, despite recent distractions from a battle with an activist investor, is posting some improved numbers.
Crescent Point says it remains on track to hit 2018 exit production growth of at least 7% and says it can cover the existing dividend and its capital expenditures with funds from operations. Management recently sold $225 million in non-core assets and intends to use the funds to reduce debt.
Is one a better bet?
Contrarian investors with a bullish view on oil and a stomach for volatility might want to take a small position in Crescent Point while the company remains out of favour. Otherwise, I would probably make TransCanada the first choice today, given the strong dividend-growth outlook.
