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October 4, 2019

Cenovus (TSX:CVE) Increases Its Dividend By 25%

Disclaimer: The writer of this article may have positions in the securities mentioned in this article. The fact they hold positions in securities has had no impact on the production of this article

By Dan Kent

October 4, 2019

Cenovus Energy (TSX:CVE) has put investors through the ringer thus far in 2019. The stock has touched peak 2019 highs twice this year, once back in mid April and another in September. After the Saudi Arabia drone strikes, Cenovus’s stock hit highs of nearly $14 a share.

It has since fallen now that the markets have digested the news of the Saudi Oil strike. But Cenvous Energy issued a bullish signal, and investors who are still determined to stick with the oil and gas industry may be wise to check the Canadian producer out.

Cenovus (TSX:CVE) issues a 25% increase of its dividend

Dividend increases are a regular occurrence in the markets. Companies generate more cash flows, and in return reward dedicated investors with an increase of its dividend. However, typically companies that are increasing their dividend are often doing so when times are good. This isn’t the case with Cenovus, yet it just raised its dividend 25% a few days ago.

Cenovus is down nearly 50% over the last three years, and the company posted revenue of $21.3 billion in 2018, which is only 5% higher than 5 years ago. The price of crude has had a substantial effect on the company’s top and bottom lines, along with high debt levels due to the acquisition of ConocoPhillips assets.

Managements decision to raise the dividend can only mean one thing, they finally see a promising future. The company’s stock price really didn’t react as expected to the dividend increase. This may be due to the fact it issued a statement saying CAPEX was being cut by nearly $150 million heading into next year.

How does Cenovus look moving forward?

You won’t find too many Canadian oil and gas stocks that aren’t trading at a significant discount right now, and Cenovus is no exception. The company is expected to generate significant cash flows of $11 billion over the next 5 years, and is working extensively to eliminate its burdening debt.

Cenovus is trading at around 17.50 times forward earnings and only 0.73 times book value. With a 5 year PEG ratio of 0.49, there is significant growth not currently priced into this stock. Guidance for upwards of a 10% annual dividend growth rate is also a huge positive.

I would expect Cenovus, who reports earnings in late October, to come out with better than expected results. The timing of the dividend increase, along with strong third quarter results could send the stock higher.

Cenovus is definitely a potential turnaround play, but one that could take time to come to fruition. Production growth is expected to be minimal, and the company still doesn’t yield enough after the increase (2.15%) to attract most income investors. If you’re looking for a strong dividend growth stock with a high yield, maybe consider checking out TD Bank.

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Dan Kent


An active dividend and growth investor, Dan has been involved with the website since its inception. Dan is primarily a researcher and writer here at Stocktrades.ca, and his pieces have numerous mentions on the Globe and Mail, Forbes, Winnipeg Free Press, and other high authority financial websites. He has become an authority figure in the Canadian finance niche, primarily due to his attention to detail and overall dedication to achieving the highest returns on his investments. Investing on his own since he was 19 years old, Dan has compiled the experience and knowledge needed to be successful in the world of self-directed investing, and is always happy to bring that knowledge to Stocktrades.ca readers and any other publications that give him the opportunity to write. Dan manages his TFSA, RRSPs and a LIRA at Questrade, and has compiled a real estate portfolio of his primary residence and 2 rental properties, all before his 30th birthday.

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