Canadian energy stocks have rebounded from the slump at the start of 2023 due to declining oil prices. As of this writing, the sector outperforms the TSX year to date at +4.04% versus -1.27%. The heavyweight sector still draws investors, notwithstanding the inherent volatility.
Another indication of the strong investor support is the composition of the 2023 TSX30 List, an annual ranking of the 30 top-performing stocks in a three-year period. Over half of the winners (16) belong to the oil & gas sector. Calgary-based Paramount Resources held the top spot.
Arc Resources (TSX:ARX) ranks 26th on the prestigious list with a +327% performance in the three years. While this growth stock isn’t in the top 20, it continues to make waves. At $20.36 per share, the market-beating return or year-to-date gain is 14.68%. Also, ARX has gained 31.22% in six months and pays a decent 3.14% dividend.
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Operations and portfolio of assets
Arc Resources operates in northern Alberta and northeast British Columbia and boasts decades of top-tier development opportunities. Its role in developing Canada’s rich energy resources in the Western Canadian Sedimentary Basin is vital.
This $12.33 billion energy company is the largest producer in the world-class resource play at Montney, Canada’s largest condensate producer and third-largest gas producer. Besides exploring and producing natural gas, condensate, and natural gas liquids (NGLs), ARC Resources create and capture value along the entire energy value chain.
The wellhead-to-market operations start with drilling and completions, then to production and processing before transporting the lowest emission energy to sales points and key markets in North America and internationally. According to management, the inventory runway of the quality assets can extend into the future or for decades to come.
Montney is one of the world’s largest gas plays and the source of one-third of Canada’s natural gas production. The National Energy Board (NEB) projects that by 2040, the output from Montney will make up 50% of the country’s production.
ARC Resources is an early mover in the Montney formation. The energy company drilled its first well in 2005, and the asset base has grown to an extensive network of owned and operated infrastructure. Each of the seven producing and growth assets in 2023 has a deep inventory of development opportunities.
Commitment to shareholders
ARC focuses on delivering sustainable and profitable growth. Among the objectives of its five-year plan (2024 to 2028) are a 200% growth in free funds flow and a 20% return on average capital employed. For 2023, the company commits to essentially return all free funds flow to shareholders.
In the first half of 2023, net income climbed 23.11% year over year to $853.8 million. Also, during the period, ARC returned 107% of free funds flow to shareholders and repurchased 47 million common shares since the NCIB renewal in September 2022. The 110% distribution ($159 million) of free funds flow in the second quarter of 2023 was a combination of dividends and share repurchases.
Dividend history
ARC Resources’s dividend yield isn’t the highest in the market, but its long-term mechanism of returning capital to shareholders assures rock-steady payouts. The energy stock hasn’t missed a quarterly dividend payment since 2017.
