Cenovus Energy raises dividend 28.6% amid strong cash flow projections

Despite challenges, Cenovus Energy’s production increase (and higher oil prices) will deliver extra revenue and cash flow to cover the solid dividend: a 24% jump is projected and will provide plenty of financial flexibility.

Meanwhile, the company is demonstrating commitment to handsome shareholder returns with a variable dividend that will scale up to 100% of free cash flow once debt reaches its target level.

The firm also remains cheap, as the stock trades at just 8.5 times the company’s forward earnings forecast.

CENOVUS ENERGY (Toronto symbol CVE; www.cenovus.com) has evacuated some of the workers at its Sunrise oil sands project due to wildfires in Northern Alberta.

Even so, the facility continues to operate at normal levels. That means that for all of 2024, Cenovus’s production will probably rise about 2% to 791,100 barrels a day. Combined with improving oil prices, the company’s cash flow could also jump 24% to $5.82 a share. The stock trades at just 3.8 times that forecast.

That higher cash flow will also give Cenovus more room to continue increasing your dividend.

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That adds to the existing good news about the way the firm modified its shareholder return policy.

Right now, Cenovus returns 50% of its free cash flow (after capital expenditures) to shareholders in the form of higher dividends and share buybacks. Once its net debt (total debt less cash balances) falls below $4.0 billion (it was $4.26 billion as of June 30, 2024), Cenovus will return 100% of free cash flow to shareholders.

Under the new plan, when net debt rises above $4.0 billion, the company will deduct the amount by which the previous quarter’s net debt exceeded $4.0 billion from the 100% payout. This new policy gives it more flexibility to manage future investments and debt levels.

Energy Stocks: Higher dividend from Cenovus Energy means a better return for you

With the June 2024 payment, the company raised the quarterly dividend by 28.6%, to $0.18 a share from $0.14. The new annual rate of $0.72 yields 3.3%. The company also paid a variable dividend of $0.135 a share on May 31, 2024.

Meanwhile, the company is now Canada’s third-largest producer of oil and natural gas after Canadian Natural Resources and Suncor. That follows its all-stock acquisition of rival oil producer Husky Energy Inc. (Toronto symbol HSE) on January 1, 2021.

Cenovus sends most of its crude oil production to its 50%-owned oil refineries in Illinois and Texas. Phillips 66 (New York symbol PSX) holds the other 50%.

As part of the Husky acquisition, Cenovus now owns 100% of two refineries in Ohio (in Toledo and Lima), as well as third facility in Superior, Wisconsin.

Recommendation in The Successful Investor: Cenovus Energy Inc. is a buy.

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Jim Bates

Jim is an associate editor at TSI Network. He is the lead reporter and analyst for The Successful Investor and Wall Street Stock Forecaster and a member of the Investment Planning Committee. Jim has held the Chartered Financial Analyst designation since 1992 and spent more than a decade at the Financial Post DataGroup before joining TSI Network. He has a Bachelor of Commerce degree from the University of Toronto.

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