When oil costs swing, vitality shares often aren’t far behind. And with tensions round world provide, Group of Petroleum Exporting Firms’ (OPEC+) manufacturing cuts, and the regular rise in demand, many traders count on one other spike in costs earlier than lengthy.
That makes now an excellent time to take a second have a look at Canadian producers, particularly these that may deal with worth volatility and nonetheless pay a powerful dividend. Peyto Exploration & Growth (TSX:PEY) stands out as an vitality inventory value watching earlier than oil costs climb once more.
About Peyto
Peyto is a pure fuel and pure fuel liquids producer based mostly in Alberta. It’s a mid-cap title within the Canadian vitality sector, with a market cap round $3.9 billion and a observe report for preserving operations lean. It makes a speciality of growing high-efficiency, low-decline belongings in Alberta’s Deep Basin, and owns and operates its personal fuel processing infrastructure. That vertical integration helps it management prices higher than many opponents.
As of writing, the inventory trades round $20 per share, close to the highest finish of its 52-week vary. Regardless of this latest energy, the vitality inventory nonetheless seems attractively priced. It has a trailing price-to-earnings ratio of 13 and a ahead P/E even decrease. It additionally pays a month-to-month dividend, popping out at $1.32 yearly, which provides it a yield of 6.8%. That form of regular revenue is uncommon within the vitality house, particularly when it’s backed by stable free money move and disciplined capital allocation.
Into earnings
In its most up-to-date earnings report for Q1 2025, Peyto posted income of $354 million, up from $314 million in the identical quarter final 12 months. Web revenue got here in at $114 million, a big enchancment over $78 million the 12 months earlier than. Earnings per share (EPS) have been $0.57, barely under analyst expectations of $0.635, however nonetheless a powerful consequence given softer vitality costs in early 2025. The vitality inventory maintained a formidable working margin of over 70%, persevering with its fame as one of many lowest-cost producers within the nation.
Peyto has additionally been drilling extra effectively. Administration highlighted a 40% value discount in horizontal wells through the quarter, which is predicted to assist increase output in 2025. Capital spending is predicted to return in between $450 million and $500 million for the 12 months, and the vitality inventory has hedged a big portion of its output to make sure secure money move even when costs dip once more.
Extra to return
Past the basics, what units Peyto aside is its consistency. Over the previous 12 months, the vitality inventory is up almost 40%. Whereas a few of that’s tied to stronger fuel costs, a lot of it displays confidence within the firm’s capacity to ship dependable earnings and month-to-month dividends. Whilst vitality costs fluctuate, Peyto has continued to reward shareholders.
That stated, there are dangers. Pure fuel costs stay unstable, and any dip may put stress on margins. The vitality inventory did miss earnings expectations final quarter, which exhibits that even environment friendly operators might be affected by market situations. However Peyto’s hedging technique and low breakeven prices provide some safety. And the month-to-month dividend offers a cause to carry even throughout quiet durations.
Backside line
In case you’re on the lookout for publicity to the vitality sector however need to keep away from the boom-and-bust cycle that hits extra leveraged producers, Peyto affords a balanced strategy. It doesn’t depend on excessive costs to show a revenue. As a substitute, it focuses on doing extra with much less: drilling sensible, working lean, and returning worth to shareholders.
That’s why Peyto seems like a wise guess earlier than oil costs spike once more. The inventory is well-managed, pays a stable dividend, and has room to develop. In case you’re trying so as to add a reliable vitality title to your portfolio, this might be the proper inventory on the proper time.
