Should you invest $1,000 in Vanguard Ftse Canadian High Dividend Yield Index Etf right now?

Before you buy stock in Vanguard Ftse Canadian High Dividend Yield Index Etf, 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 Vanguard Ftse Canadian High Dividend Yield Index Etf 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 $21,058.57!*

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 38 percentage points since 2013*.

See the Top Stocks * Returns as of 2/20/25

OPEC Production Deal Implodes: The Next Oil Price Collapse Has Arrived

Avoid heavily indebted energy stocks like Baytex Energy Corp. (TSX:BTE)(NYSE:BTE).

| More on:

Coronavirus fears and the economic fallout from slower growth in China has hit oil prices hard. The recent meeting between OPEC and its allies, notably Russia, has revealed gaping holes in the alliance, with the parties failing to reach agreement about making further production cuts.

There are signs that the alliance between the cartel and Russia is over, with Moscow refusing to cut oil production further while indicating that it is considering boosting its oil output. This is applying considerable pressure to oil prices, with the international benchmark, Brent plunging by 50% since the start of 2020 to be trading at around US$45 per barrel at writing.

That has sparked a bloodbath among energy stocks, with the largest industry exchange-traded fund (ETF), the Energy Select Sector SPDR Fund, losing a whopping 30% for the year to date.

These latest developments highlight just how precarious it was to bet on higher oil when prices were being supported by production cuts being made by OPEC and its allies amid an operating environment where a large supply glut existed.

There is every indication that the price of crude will fall further as the economic impact of the coronavirus virus ripples around the globe.

Worsening outlook

Some analysts are expecting oil demand growth to fall by up to 50%, which along with signs of a global economic slowdown will weigh further on prices. Saudi Arabia has responded to Russia’s unwillingness to agree to further production cuts by launching what appears to be an all-out price war to flood energy markets, causing the price of crude to fall to levels that are unprofitable for U.S. shale oil drillers.

At the end of March, when the latest OPEC production cuts expire, Saudi Arabia can pump as many barrels of crude as it wishes. Industry analysts believe that Saudi Arabia can produce up to 12.5 million barrels daily — nearly 30% more than its current output.

If Riyadh decides to significantly boost its oil output, the price of crude will fall further, with the possibility of Brent falling below US$40 a barrel for the first time since April 2016.

The price differential between the international Brent price and the North American West Texas Intermediate (WTI) benchmark, which stands at around US$4 per barrel, will cause WTI to plunge even further.

This will apply considerable pressure to many North American drillers and have an even sharper impact on Canada’s energy patch because of the discounts applied to Canadian light and heavy crude price benchmarks compared to WTI.

If that occurs, it will trigger a bloodbath among energy stocks with many basing their 2020 earnings forecasts on US$55 WTI.

Energy stock to avoid

The most vulnerable are those drillers with debt-laden balance sheets like Baytex Energy (TSX:BTE)(NYSE:BTE). Since the start of 2020, Baytex has lost 44% and appears poised to fall further as its tremendous amount of debt totalling $1.8 billion and debt maturities weigh on its outlook.

While Baytex successfully raised capital to push out its first debt maturity of US$400 million to 2024, it will struggle to be profitable if West Texas Intermediate (WTI) falls below US$50 per barrel for a sustained period.

Baytex could even be forced to dial down investment in exploration and well development, thereby impacting its ability to grow production.

If the oil price collapse worsens, Baytex could even be forced to make asset sales further reducing its oil reserves and production at a time when it needs to boost output to bolster cash flow.

Looking ahead

As the global spread of the coronavirus worsens, oil prices will continue to fall because of an increasingly weaker global economic outlook. It is believed that the contagion could reduce China’s 2020 GDP growth to less than 5% year over year, indicating that there’s worse to come for oil.

The collapse of the OPEC production deal and Saudi Arabia’s decision to bolster production in a world facing an economic downturn and oil supply glut will weigh on energy prices boding poorly for debt-laden Canadian drillers like Baytex.

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 of the stocks mentioned.

More on Energy Stocks

A worker overlooks an oil refinery plant.
Energy Stocks

Dividend Investors: Top Canadian Energy Stocks for March

These two energy stocks have increased payouts and have strong outlooks, making them potentially ideal picks for dividend investors.

Read more »

oil and natural gas
Energy Stocks

3 Top Energy Sector Stocks for Canadian Investors in 2025

Despite ongoing uncertainty amid the tariff war with the U.S., these three TSX energy stocks can be strong long-term holdings…

Read more »

Oil industry worker works in oilfield
Energy Stocks

Is Whitecap Resources Stock a Buy for its 7.8% Dividend Yield?

Whitecap stock's recent merger with Velen sent shares dropping, but this could mean there's a value opportunity.

Read more »

oil pump jack under night sky
Energy Stocks

Canadian Natural Resources: Buy, Sell, or Hold in 2025?

This energy stock has certainly made an impression on investors in the past. But with tariffs coming down hard, what's…

Read more »

Offshore wind turbine farm at sunset
Energy Stocks

Best Stock to Buy Right Now: Brookfield Renewable vs TransAlta Renewables?

These two energy stocks look primed to explode, and at these prices, investors would do well to pick them up…

Read more »

The sun sets behind a power source
Energy Stocks

Emera: Buy, Sell, or Hold in 2025?

Emera stock has had a fairly turbulent year, but does that mean investors should take this opportunity to buy or…

Read more »

Trans Alaska Pipeline with Autumn Colors
Energy Stocks

Outlook for Enbridge Stock in 2025

Enbridge stock has been in the limelight since the tariff war began, making risk-averse investors anxious. Here is what you…

Read more »

bulb idea thinking
Energy Stocks

Got $2,500? 3 Energy Stocks to Buy and Hold Forever

These three energy stocks would be ideal additions to your long-term portfolios, given their solid underlying businesses, stable cash flows,…

Read more »