Topic: Energy Stocks

Get a 3.1% yield from ARC Resources

Oil and gas stocks have risen as the U.S. and other economies recover. But before prices climbed, this firm took advantage of the weakness to buy a major property at a low price.

Meanwhile the shares trade at just 4 times their forecast cash flow in 2021.

ARC RESOURCES, (Toronto symbol ARX; produces natural gas in Western Canada as well as oil. Its average output of 169,468 barrels of oil equivalent per day is 77% natural gas and 23% oil.

Cash flow in the quarter ended December 31, 2020, was up 22.4%, to $0.60 from $0.49 a year earlier. The higher output offset lower oil prices. The company’s long-term debt stands at $555.2 million, or a low 10% of its market cap. The strong balance sheet is a big plus for investors at a time when most producers are struggling with high debt.

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ARC has just agreed to buy Seven Generations Energy for $2.7 billion in ARC shares. The deal creates Canada’s sixth-largest energy company, with output averaging 340,000 barrels per day.

We still like ARC’s long-term prospects for investors. Your shares trade at just 4.0 times their 2021 forecast cash flow per share of $1.92. Meantime, ARC shares give you a 3.1% yield; your current dividend, while not guaranteed, appears safe given the company’s steady cash flow.

Recommendation in Canadian Wealth Advisor: ARC Resources is a buy.


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