RE:Total return, not just dividend returnriski wrote I think where a lot of investors in CJ get hung up is on the dividend and why the stock price isn't way higher when the dividend is 85 plus. The reality is that many companies are providing great returns right now, it's just that most of them are not doing it all as a dividend.
Total return is growth, share buyback, debt reduction, and dividends. All of these together are what create shareholder value.
Just because CJ pays a high dividend does not mean they are providing a high total return. In fact, their total return is low by most CAD O&G companies right now. That's because their CFPS is on the lower side relative to others. So maybe they think if they put most of their return into dividends that they will attract investors. But the market is more sophisticated than that. It ends up attracting a lot of retail which drives the price up, but the big money who know how to analyze total return on an investment take their money out of a relatively* overpriced stock like CJ and put it into something
providing a higher return on capital.
This is a good example of how professional investors make money on the backs of retail.
*I say relatively because all O&G companies are undervalued relative to traditional value measures using multiple of earnings. So CJ is overpriced relative to peers, but undervalued in general along with the rest of the industry. I am unsure if this is ever going to correct as oil is now the bad boy of the investment world. The tabacco of the 2020s. Eventually, the amount of cash being generated by these companies cannot be ignored and all should go up. Others will do better than CJ from current valuation.
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At the current price of oil CJ will not be putting most of their money into dividends. At $90 oil with normal capex CJ will have Free Cashflow of aprox. $235 million per year. The 6 cent monthly dividend will cost aprox. $110 million per year leaving aprox. $125 million in Free Cashflow for the company to pay back debt, asset purchases, share buybacks etc. Free Cashflow per share at $90 oil is aprox. $1.50 per year at the current shareprice of $7.92 that is an aprox. 18% Cash return.
The thing some investors seem to miss when comparing CJ to other oil stocks is that while many other oil companies that have a lot of debt and more production may make more profits if oil stays high most of that money will go to pay back debt so shareholders have to wait for years in many cases until debt is payed down. By that time cyclical oil prices will likely drop and shareholders will have to wait for more years to get a nice dividend.
CJ on the other hand in the next six months if oil prices stay at these levels will be debt free and can pay the current dividend and still bank over $10 million per month.
Would you rather own a house with a mortgage that you had to pay interest and principal on each month for years to come and hope you dont lose your job or would you rather own a home free and clear and all the money that you earn is yours for whatever you want to do with it.
Personally i like the Free and Clear with $20 million per month in Free Cashflow pouring in that CJ will soon have.
Good luck to all.