Best Risk & Reward Option: 1 Energy Stock to Buy if Oil Prices Tank

Earn income for life on top of your pensions. Imperial Oil stock hasn’t missed a dividend payment since the 1880s. Buy this king of dividends today and hold it forever.

| More on:

Some investors with positions in energy stocks fear another oil price drop. The resurgence of COVID cases in the U.S., China, and other parts of the world is curbing oil demand. On the TSX, Imperial Oil (TSX:IMO)(NYSE:IMO) investors aren’t worried about a bear market. The dividend stock hasn’t missed paying a dividend since the 1880s.

The energy stock belongs in the league of the Big Five banks and telecom giant BCE. These companies have dividend track records of more than 100 years. Bank of Montreal is the pioneer. It started the practice in 1829. Imperial Oil may not be a suitable core holding in a stock portfolio, but it should be a valuable addition if you want stability and pension-like income.

Energy sector boom

The Delta coronavirus variant could impact oil prices, but industry observers believe the ever-rising demand in the coming months will push oil prices higher, not pull them down. The price per barrel could potentially hit US$80. Energy is TSX’s top-performing sector since the start of the year.

As of August 3, 2021, the energy sector enjoys a 37.73% gain and outperforms the broader market (+16.82%). Meanwhile, Imperial Oil is a high flyer. The year-to-date gain is 46.77% — a better performance than the sector and the TSX. It seems the momentum will continue following the company’s most recent quarterly earnings results.

Sterling Q2 2021 results

In Q2 2021 (quarter ended June 30, 2021), Imperial Oil reported $366 million in net income versus the $526 net loss in Q2 2020. For the first half of the year, the company’s net income is $758 million compared to $714 in net loss in the same period last year. The turnaround was a massive +$1.472 billion.

According to Brad Corson, Imperial Oil’s chairman, president, and CEO, the company took decisive actions to accelerate structural business improvements throughout the pandemic. It was why Imperial Oil recovered strongly and generated over $1.8 billion in cash flow from operating activities year to date.

Mr. Corson said, “Imperial has significant momentum entering the second half of the year and is well-positioned to continue delivering on its commitments.” The quarter’s highlight was the average upstream production of 401,000 gross oil-equivalent barrels per day. It was Imperial’s highest second-quarter production in more than 25 years.

Increase in shareholder value

Imperial Oil returned over $1.3 billion to shareholders during the same quarter through dividends and share buybacks. Of the total, $161 million went to dividend payments. Through its share-repurchase program, the $20.5 billion producer of crude oil and natural gas will buy back 5% of its outstanding shares in 12 months, culminating on June 28, 2022.

Corson added, “Looking forward, with our major turnarounds complete, we are focused on increased production, higher refinery utilization, continued capital discipline, and returning cash to shareholders.”

Ever-reliable income stock

Imperial Oil has 140 years of experience in a volatile sector. It has gone through the worst and witnessed the oil industry’s peaks and valleys through the years. With not a single missed dividend payment for more than a century, this energy stock is buy-and-hold forever asset. The dividend yield is modest (2.67%), but the payments make for a lifetime-like pension.

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Dividend Stocks

dividends can compound over time
Dividend Stocks

Want a 7% Yield? The 3 TSX Stocks to Buy Today

These TSX stocks are offering high yields of over 7%, making them attractive for investors seeking steady passive income.

Read more »

how to save money
Dividend Stocks

The Smartest Dividend Stocks to Buy With $200 Right Now

These smartest dividend stocks can consistently pay and increase their dividends in the coming years, irrespective of the macro uncertainty.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

3 Utility Stocks That Are Smart Buys for Canadians in November

These utility stocks benefit from regulated businesses and generate predictable cash flows that support higher dividend payouts.

Read more »

Start line on the highway
Dividend Stocks

Invest $10,000 in This Dividend Stock for $600 in Passive Income

Do you want to generate passive income? Forget the rental unit! This option will save you the mortgage yet still…

Read more »

Senior uses a laptop computer
Dividend Stocks

1 Reliable Dividend Stock for the Ultimate Retirement Income Stream

TD Bank (TSX:TD) shares are way too cheap with way too swollen a yield for retirees to pass up right…

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

Is Brookfield Infrastructure Partners a Buy for its 4.75% Yield?

Brookfield Infrastructure Partners (BIP) has a 4.75% dividend yield. Is it worth it?

Read more »

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

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks Worth Holding Forever

These TSX stocks have the potential to grow their dividends over the next decade, making them top investments for TFSA…

Read more »