Even before the phenomenal industry-wide gains of 2022, this energy producer was a long-term buy for our subscribers.
In fact, the stock has delivered a 1,052.5% 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 3.1% dividend yield.
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Oil prices declined in early 2023 on fears rising interest rates would trigger an economic slowdown. However, 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 5.2 times cash flow.
IMPERIAL OIL LTD. (Toronto symbol IMO; www.imperialoil.ca) gets about 60% 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.
Energy Stocks: Imperial Oil’s payout, revenue and cash flow all improve
With the July 2023 payment, Imperial will raise your quarterly dividend by 13.6%, to $0.50 a share from $0.44. The new annual rate of $2.00 yields 3.1%.
With this latest increase, Imperial has now raised its dividend by an average of 21.4% 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 58.4% to $59.4 billion along with much stronger 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 the first quarter of 2023, Imperial’s production rose 8.7% from a year earlier. But due to lower oil prices, revenue dropped 4.5%, to $12.12 billion from $12.69 billion.
Cash flow jumped 27.5%, to $1.55 billion from $1.22 billion, on strong operating performance. Due to fewer shares outstanding, cash flow per share rose at a faster rate of 46.2%, to $2.66 from $1.82.
Cash flow will likely total $12.62 a share in 2023, and the stock trades at a low 5.2 times that estimate.
What happened to the old saying that past performance is not indicative of future returns, especially for the commodity that this equity is based on. Still trying to decide on which is a better investment SU or IMO or maybe hold both. I like the carrier more than the producer.
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What happened to the old saying that past performance is not indicative of future returns, especially for the commodity that this equity is based on. Still trying to decide on which is a better investment SU or IMO or maybe hold both. I like the carrier more than the producer.
Thanks, Richard, for sharing your thoughts. We continue to like both of these integrated oil producers and their long-term outlook.