Gordon Pape:
If you’re dead set against fossil fuels, stop reading now. But if you have an open mind about holding some traditional energy stocks in your portfolio and locking in some high yields, take a look at Gibson Energy. Here are the details. Prices are as of Oct. 15
Gibson Energy Inc. (GEI-T)
- Type: Common Stock
- Current price: $23.53
- Annual payout: $1.40
- Yield: 5.9 per cent
- Risk rating: Higher risk
- Website: gibsonenergy.com
The business: This is a Calgary-based oil infrastructure company. Its principal businesses consist of the storage, optimization, processing, and gathering of crude oil and refined products. The company’s operations are focused around its core terminal assets located at Hardisty and Edmonton, and also include the Moose Jaw Facility and an infrastructure position in the US.
A year ago, nobody wanted energy stocks based on fossil fuels. Green was in, black was out. Shares of Gibson traded as low as $17.60 last fall. The dividend yield at that point was 7.7 per cent. But a year later, everything has changed. Green energy stocks are in a prolonged bear market. Traditional oil and gas stocks are riding high.
The security: I recommend the common shares of Gibson Energy, which trade mainly on the TSX, although they are available over the counter in the U.S.
Why we like it: Yield. The company raised its dividend by a penny last March to 35 cents per quarter ($1.40 annually). Based on the current price, that’s a return of 5.9 per cent. Equally important, Gibson did not cut its dividend during the drop in oil prices that coincided with the onset of the pandemic.
Financial highlights: Second quarter results showed an increase in revenue of 111 per cent over the same period in 2020 to $1.675-billion. However, net income was down 22 per cent to $32 million (22 cents per share). The company said this was “driven by the availability of time-based opportunities created by significant volatility in commodity markets during the prior quarter as well as limited opportunities and reduced margins within the Crude Marketing business in the current quarter”.
Distributable cash flow was $92 million, a $2 million or 2 per cent decrease over the second quarter of 2020. Payout ratio on a trailing twelve-month basis was 73 per cent, near the low end of Gibson’s 70 per cent – 80 per cent target range.
Risks: Obviously, anything associated with the oil industry is risky these days and subject to high volatility. But the fact that Gibson came through the 2020 oil crunch and the pandemic without major damage and felt confident enough to raise its dividend this year is encouraging,
Distribution policy: Dividends are paid quarterly, in March, June, September, and December.
Tax implications: Payments are eligible for the dividend tax credit if the shares are held outside a registered plan.
Who it’s for: This stock is for investors seeking a high yield security who are willing to accept above-average risk and are comfortable investing in fossil fuel companies.
How to buy: The shares trade actively on the TSX. They are also listed on the Pink Sheets in the US as GBNXF, however volume there is very light, and a limit order is advised.
Summing up: This is one of the best yields you’ll find from a quality company. But let your conscience be your guide when it comes to the global warming issue.