If you’re dead set against fossil fuels, stop reading now. But if you have an open mind about holding some traditional energy stocks in your portfolio and locking in some high yields, take a look at Gibson Energy. Here are the details.
Gibson Energy Inc. (GEI-T)
- Current price: $23.14
- Annual payout: $1.40
- Yield: 6.1 per cent
- Risk rating: Higher risk
The business: This is a Calgary-based oil infrastructure company. Its principal businesses consist of the storage, processing and gathering of crude oil and refined products. The company’s operations are focused around its core terminal assets located at Hardisty, Alta., and Edmonton, and also include a facility in Moose Jaw, as well as some U.S. pipelines and terminals.
A year ago, nobody wanted energy stocks based on fossil fuels. Green was in, black was out. Shares of Gibson traded as low as $17.60 last fall. The dividend yield at that point was 7.7 per cent. But a year later, everything has changed. Green energy stocks are in a prolonged bear market. Traditional oil and gas stocks are riding high.
Why we like it: Yield. The company raised its dividend by a penny last March to 35 cents a quarter ($1.40 annually). Based on the current price, that’s a return of 6.1 per cent. Equally important, Gibson did not cut its dividend during the drop in oil prices that coincided with the onset of the pandemic.
Financial highlights: Second-quarter results showed an increase in revenue of 111 per cent over the same period in 2020 to $1.68-billion. However, net income was down 22 per cent to $32-million (22 cents a share). The company said this was driven by “time-based opportunities” created by volatility in commodity markets during the prior quarter compared with “limited opportunities and reduced margins” in the crude marketing business in the most recent quarter.
Distributable cash flow was $92-million, a decrease of $2-million, or 2 per cent over the second quarter of 2020. The dividend payout ratio on a trailing 12-month basis was 73 per cent, near the low end of Gibson’s target range between 70 per cent and 80 per cent.
Risks: Obviously, anything associated with the oil industry is risky these days and subject to high volatility. But the fact that Gibson came through the 2020 oil crunch and the pandemic without major damage and felt confident enough to raise its dividend this year is encouraging.
Distribution policy: Dividends are paid quarterly, in March, June, September and December.
Who it’s for: This stock is for investors seeking a high-yield security who are willing to accept above-average risk and are comfortable investing in fossil fuel companies.
How to buy: The shares trade actively on the TSX. They are also traded in the U.S. over-the-counter market as GBNXF, however volume there is very light and a limit order is advised.
Summing up: This is one of the best yields you’ll find from a quality company. But let your conscience be your guide when it comes to the global warming issue.
Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca/subscribe
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