RE:RE:RE:Total return, not just dividend returnriski wrote
Not most, but a lot of their FCF goes to dividends. There are better ways to increase shareholder value.
From the shareholder's perspective, 20%-35% of that dividend (depending on tax bracket) goes straight to the government every single year. Why do you want your shareholder returns to be taxed every year? Get out a spreadsheet and see how damaging that is to longterm wealth.
But let's explore the giant CJ dividend a little more: Right now we can buy a risk free 1 year GIC for 5.1% assuming 100k to invest. The capital is 100% secure. CJ offers 8%, a measly 2.9% more with infinite more risk to the capital and limited growth from here. Is that a good place to risk capital?
Inflation is currently running at 9%. The dividend doesn't even cover inflation, especially when net of tax.
Other names are going up faster and will continue to increase in value faster because they offer better total return profile which increases the value of the company and ultimately makes the shares more expensive...without having to pay tax every year. Just once when sold for the cheaper CG tax rate.
Context matters. Details matter. This stock is nearly 100% retail for a reason.
If you want to profit from the theory of high oil prices for longer, there are so many better places to risk your capital. And let's face it, all junior CAD O&G carries a lot of risk.
Best of luck with your investment decisions.
sclarda wrote: riski 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.
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There may be better ways to increase shareholder value at least according to you but the fact is this company is run by management and not you and me. They have stated for quite some time that they wanted to pay down debt and then return capital to shareholders by higher dividends and share buybacks and that is what they are doing.
You tell us that other names are going up faster and will continue to go up faster. How do you know that. As you say there is a lot of risk in oil and gas stocks. If we have a large drop in oil prices i would like to see how the high flyers who are levered up on debt do. They will go broke and then people like you will be yelling and screaming at how dumb management was to not pay off debt when they could.
Personally i will take my 9% plus dividend every month right now and 18% total return on a nearly debt free company like CJ and pay the minor taxes i will have to pay and you can keep your high debt, high flyers and take your huge profits years from now that is if we dont have another oil price crash and you end up with a few bankrupt oil companies and worthless shares. Plug that into your spreadsheet and see how damaging that is to long term wealth.
In the long run we are all dead. I and most on this board who have invested there money here want money now not at some undetermined time in the future. This
company can pay us a very nice dividend down to very low oil prices. It has little debt soon to be zero.
CJ has always been my favourite oil stock and now that oil prices are much higher and $200 million plus in debt has nearly disappeared is not the time to
sell its the time to buy more of this gem.
Mr. Edwards the Billionaire seems to like the way management is handling things. Personally i would have to go with the Billionaires opinions over some Stockhouse basher such as yourself sorry.