Since the last oil boom crash in 2014, oil firms, especially in Canada have learned their lesson from frivolously spending free cash flow on poor capital investments without any discipline. Today, these companies now have balance sheets that are in excellent if not enviable shape with continuously falling debt that have been rigorously managed and well under control, and the result is unbelievable free cash flow volumes that boggles my mind. The commitment by most of these companies is to return excess free cash flow to shareholders via dividends and share buybacks, while maintaining excellent capital allocation and disciplined growth initiatives based on and oil prices and optionality. The companies I have screenshot are all quite healthy in their profits and free cash flow in spite of low oil prices and a saturated market. I have only been investing in energy stocks the last 3 years, but have enjoyed learning the value of energy as a strategic resource and their cash flow models. As a former business leader (some of these companies were past clients), I have yet to see an industry sector with as healthy business fundamentals as these companies are currently exhibiting. Regardless of politics, it is becoming clear to all across the world the importance of energy security and this is not missed by me - a retiree needing steady income and growing income over inflation. These dividends are healthy, and Imperial Oil for example just increased their dividend rate by 21%. I now own all of these companies $CNQ$CNQ$SU$SU$CVE$CVE$IMO$IMO and have recently scaled into $WCP$WCPRF and started a deposition in $XOM and $XES on Friday. Since initiating 3 years ago on lows, I am now well over 6% average yield on original investment and solid capital appreciation as a margin of safety for long-term holding. But the continuously rising dividend rate averaging above 5% is critically important and the outlook remains positive in the energy sector for disciplined management and solid growth. For dividend naysayers that will go on about growth and âcompoundingâ. I will say this, companies and CEOâs are not always the greatest at capital allocation when profits are rising and everyone is flush. If you look behind the curtains you will see that the majority of tech growth companies are borrowing debt and use massive amounts of free cash flow to buyback shares when their share price is the highest. This is not compounding. Apple have âborrowedâ nearly $190B in debt to buyback shares for example. For me to buyback shares at all time highs using debt boggles the mind. This is not the best allocation of capital, but the market doesnât seem to care.
