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Energy stocks: More secure dividend gives Peyto the edge over Bonavista in oil and gas downturn

Peyto Bonavista commodity stocks

Last week we looked at two pipeline stocks we rate as buys for conservative investors (see Pembina Pipeline and Veresen boast high yields and promising projects). Today, we examine two energy stocks involved in exploration and development that we also recommend for conservative investors. Both Peyto Exploration and Development and Bonavista Energy have seen their cash flow and spending recede with lower energy prices. Both have the potential for a strong rebound when oil and gas prices recover, but we feel Peyto is the better buy now since its dividend appears to be the safer of the two.

PEYTO EXPLORATION & DEVELOPMENT CORP. (Toronto symbol PEY; produces and explores for oil and natural gas in Alberta. Its average daily production of 81,588 barrels of oil equivalent is 91% gas and 9% oil.

In the three months ended March 31, 2015, Peyto’s cash flow fell 10.5%, to $0.94 a share from $1.05 a year ago. It raised its production by 13.0%, but that was offset by lower gas prices.

Peyto is cutting its spending this year. Its outlays will now total $560 million to $600 million, down from $690 million in 2014.

The company is forecast to generate cash flow of $4.03 a share in 2015, based on today’s low oil and gas prices, down from $4.33 in 2014. The stock trades at 6.8 times this year’s estimate.

The shares yield 4.8%, and Peyto’s current dividend rate appears safe.

Recommendation in Canadian Wealth Advisor: BUY 

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Energy stocks: Dividend yields a very high 9.7% but may be in danger if oil and gas prices drop further

BONAVISTA ENERGY (Toronto symbol BNP; explores for oil and natural gas in Alberta, Saskatchewan and B.C. Its output is 75% gas and 25% oil.

In the three months ended June 30, 2015, Bonavista’s cash flow per share fell 34.3%, to $0.44 from $0.67 a year earlier.

Most of that drop came from lower oil and natural gas prices; the company’s output fell only slightly, to 73,736 barrels of oil equivalent a day from 74,273 barrels.

Like many producers, the company is cutting back on exploration and development spending. This year, it will devote $310.0 million to this purpose, down sharply from $639.6 million in 2014.

Even with the lower spending, its 2015 output should rise to an average of 82,516 barrels a day from 77,211 in 2014. But with oil prices under $60 U.S. a barrel—and gas prices near five-year lows at $2.89 U.S. per thousand cubic feet—Bonavista’s per-share cash flow will likely fall 31.6% this year, to $1.84 from $2.69 in 2014.

The stock trades at just 2.5 times this year’s forecast cash flow per share. That’s reasonable for a company with strong potential to grow when oil and gas prices recover. However, the $0.035-a-share monthly dividend, which yields a very high 9.1%, could be cut if prices drop further.

Recommendation in Canadian Wealth Advisor: HOLD


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