Even before the phenomenal industry-wide gains of 2022, Imperial Oil was a long-term buy for our subscribers.
In fact, the stock has delivered a 1,728.5% gain for our investors since we first recommended it as a buy in April 1995.
We love this Canadian giant because it adds to its gains in periods of both high and low oil prices. At the same time, the stability of its integrated operations backs a solid 2.3% dividend yield.
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Meanwhile, cash flow at this top oil producer remains strong. This lets it return more of that cash to its shareholders.
The shares currently trade at just 8.6 times forecast cash flow.
What does Imperial Oil do?
Imperial Oil is an integrated Canadian energy company that explores for and produces crude oil and natural gas, refines oil into petroleum products, and operates a retail network of Esso and Mobil-branded fuel stations across Canada.
IMPERIAL OIL LTD. (Toronto symbol IMO; www.imperialoil.ca) gets about 90% of its production from oil sands operations in Alberta. Other operations include three refineries (one in Alberta and two in Ontario) and a petrochemical plant in Sarnia, Ontario. It also supplies gasoline to over 2,000 Esso and Mobil gas stations in Canada. ExxonMobil (New York symbol XOM) owns 69.6% of the company’s shares.
The company recently announced that it will build a “renewable” diesel fuel complex at its Strathcona refinery near Edmonton.
Renewable diesel is a biofuel produced from wood, crops and vegetable oils. The new facility will produce 20,000 barrels a day of renewable diesel when it begins operating in 2025.
Imperial will spend $720 million on this project. Some of those costs are included in the company’s previously announced plan to spend $1.7 billion on capital upgrades and exploration in 2023.
What are Imperial Oil’s major projects?
Imperial Oil’s major projects include the Kearl oil sands mining operation in northern Alberta, the Cold Lake in-situ oil sands facility, the Syncrude joint venture, their refineries in Sarnia, Nanticoke and Strathcona, plus the research facility at Calgary Centre for Applied Technology.
Energy Stocks: Imperial Oil’s payout, revenue and cash flow all improve
With the April 2024 payment, Imperial raised your quarterly dividend by 20.0%, to $0.60 a share from $0.50. The new annual rate of $2.40 yields 2.3%.
With this latest increase, Imperial has now raised its dividend by an average of 25.9% annually over the past 5 years. Its TSI Dividend Sustainability Rating is Above Average.
Imperial Oil’s revenue climbed 39.6%, from $25.0 billion in 2016 to $35.0 billion in 2018. Revenue dropped 2.8% in 2019, to $34.0 billion. That was mainly because the Government of Alberta announced mandatory reductions in 2019 to oil and bitumen production in an attempt to narrow the price differential received for Alberta oil and bitumen compared to higher North American benchmark prices.
Revenue then fell 34.5% in 2020, to $22.3 billion. Energy prices fell along with a pandemic-induced slowdown in consumer and commercial activity. That included a steep decline in demand for gasoline, and an even sharper fall in jet-fuel prices. Revenue then rebounded by 68.3% in 2021, to $37.5 billion, as energy prices rose along with an improving global economy. Imperial’s revenue then took a big jump in 2022, climbing 58.7% to $59.7 billion along with much stronger oil and gas prices. In 2023, revenue fell 14.6%, to $51.0 billion. That decline was mostly due to lower oil and gas prices.
The company’s cash flow also rose between 2016 and 2018. Specifically, it climbed 177.9%, from $1.7 billion, or $1.96 a share, in 2016 to $4.6 billion, or $5.72 a share, 2018. Cash flow fell 23.9% in 2019 to $3.5 billion, or $4.61 a share. In 2020, cash flow dropped 75.0% to $880.0 million, or $1.20 a share. In 2021, cash flow rose sharply to $4.5 billion, or $6.32 a share. Cash flow then jumped another 100.1% in 2022 to $9.0 billion, or $14.06 a share. In 2023, cash flow then fell along with revenue, by 28.5%, to $6.4 billion, or $11.20 a share.
In the quarter ended June 30, 2024, Imperial produced an average 404,000 barrels of oil equivalent per day. That’s up 11.3% from 363,000 a year earlier. As well, thanks to higher crude prices, cash flow in the quarter rose 32.7%, to $1.51 billion from $1.14 billion; due to fewer shares outstanding, cash flow per-share jumped 44.8%, to $2.81 from $1.94.
Imperial’s long-term debt of $4.0 billion is a low 7.3% of its market cap. It also holds cash of $2.0 billion.
Imperial plans to spend $1.70 billion on capital upgrades and exploration in 2024, down from $1.79 billion in 2023. The company also expects to produce between 420,000 and 442,000 barrels a day in 2024. The midpoint of that range—431,000—is about 4% higher than its production of 413,000 barrels a day for all of 2023.
Higher output and improving productivity will probably lift the company’s projected cash flow per share to $11.98 in 2024. The stock trades at just 8.6 times that estimate.
Recommendation in Dividend Advisor: Imperial Oil Ltd. is a buy.
We hope you benefited from this analysis of Imperial Oil. The company is just one of the top-performing stock picks of our Dividend Advisor investor newsletter.
Of course, not all our picks over the years have produced these kind of spectacular gains. Some, in fact, have led to losses. But all portfolios need superstar stocks like this to offset those inevitable losses.
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Many Canadian oil companies have taken a disciplined approach to capital spending, which often translates to lower debt levels and a focus on generating free cash flow. This can be beneficial for investors seeking dividend income, so paying attention to dividend track records and payout ratios may help in selecting stable, shareholder-friendly companies. It is also wise to evaluate a company’s environmental, social, and governance practices, since reducing carbon emissions, investing in carbon capture, and maintaining strong community relations are increasingly vital for long-term resilience, especially given investor scrutiny and regulatory pressures.
Diversifying investments and balancing exposure to energy stocks with other sectors can help mitigate volatility, since oil stocks can experience sharp price swings tied to global supply and demand. Overall, it is advisable to research individual companies’ financial health, production costs, and growth strategies before making any decisions, and to monitor both domestic and global market developments that could influence prices and investor sentiment.
This post was originally published in April 2023 and is regularly updated.
