Crescent Point Energy Corp (CPG.TO)

(A Top Pick April 8/14. Down 18.99%.) He still likes this and has added to his position at lower prices. It has been working its way back up. In the Bakken, one of the better areas. Expects they will make some acquisitions that will be very advantageous to them. Feels the dividend is relatively safe.

Great company. Has a very attractive yield of $.23-$.76 for the year. Stock is trading at $30.80. The low for the stock in December, when people were worried about them cutting their dividend, was $20.87. Balance sheet is in good shape. BV is around $23. Have a good hedging program. They are talking this year of spending $1.45 billion and having average production of 150- 2,500 BOE’s a day and paying that $2.76 dividend. You may want to hold your powder dry for the next 3 months.

Financial leverage is about 1.8X debt to cash flow, which is very reasonable. The sustainability ratio, when you account for the dividend reinvestment program, is about 112%. They have a very disciplined three-year rolling hedging program. In 2015 they were about 45% hedged on their oil. In 2016, they’re something like 30%. All of the things are in place to keep it a very stable and sustainable dividend.

It is a great strategy. It started with buying existing oil fields with a very low recovery process. They are producing at very good levels and the assets have a low decline rate. This is a big advantage. They have been very prudent with acquisitions. They have a very strong hedging book. 65% of this year’s oil is sold forward at over $80 a barrel.

(Top Pick Jun 25/14, Down 36.76%) They are going out of their south east and south west Alberta asset base. They are now in Utah. They can take the technology from one area and apply it to another.

This is a name people love to hate. They are in the right part of the energy chain. The commodity is under pressure so wait until September or late August to get in.

Stock vs. Stock. CVE-T vs. CPG-T. He can’t call the bottom. CPG-T has hedged a lot of its production for this year. The pattern in the end is the same for both but if he had to choose one it would be CPG-T.

He likes the name. The sustainability of the dividend is a call on the price of oil. They hedged a good chunk of their production for 2015. The dividend would not be safe if oil hovered around $40. He thinks oil will go back up to $50-60 by the end of the year.

Has a really high hedge at $89 for this year with about 33%-40% hedged for 2016 at $84. Good balance sheet and growth in production. They can pay the dividend out of cash flow. If oil is $43 a year from now, this would probably be rethought. You would have to have quite a draconian forecast for oil for them to have to cut.

Storage of oil is very high and we are going into a season where the inventories would build. If oil went down to $10 or $20 it would not stay there because no one can produce oil at that price. CPG-T is re-evaluating their cap x program later this spring and may cut it then. They will cut cap x before cutting their dividend.

This is a high dividend payer. Had a beautiful support level at $35. Up until the recent crash in the oil sector, you treated the stock by buying at the bottom of its trading range. That was broken through last year. Chart shows it is testing that $35, but failing. His feeling is that this will have a lid of around $35 and move sideways at this point.

Change from Crescent Point (CPG-T) to Vermilion Energy (VET-T)? We don’t have the thematic backdrop that is good for energy. Doesn’t think you should be switching horses from one energy stock to another. Thinks you should leave energy and move on to a different sector. Both are going to have difficulty if energy prices move lower. None of these dividends are safe if oil prices go lower.

This company has done a great job of executing. They keep telling you how many drilling locations they have in inventory, and yet they keep buying things and issuing equity and paying out a big dividend at the same time. You are investing your money in the company, to give it back to you through a dividend and you have to pay tax on it, and then they issue more equity to buy more oil/gas in the ground. Thinks they have saturated the market and are going to have to find new investors. Expects they are going to acquire something in the next 6 months which will put a lid on the stock. He would like them to make the acquisition by cutting their dividend.

The payout ratio was too high. Their debt to cash flow is among one of the best. They are criticized about their issuing of shares to finance acquisitions, and that has preserved the company until today.

His problem with this is that a lot of what is supporting the stock is the dividend. The dividend right now is probably around 130%-140% of what their annual cash flow would be, especially once their hedges start rolling off. Doesn’t know that the dividend is necessarily sustainable at these levels. They have a great stable of properties to drill on.