Oil stocks with sustainable dividends that are insulated from widening discount for Canadian crude
The price differential between West Texas Intermediate and Western Canadian Select has more than doubled this year
What are we looking for?
Sustainable dividends from oil-service providers relatively insulated from the widening discount for Canadian Western crude.
The screen
The price differential between West Texas Intermediate (WTI) and our Western Canadian Select (WCS) has more than doubled to as high as US$28 a barrel this year.
Historically, that discount reflects the oil sands’ heavier, high-sulphur crude and its increased refining costs for U.S. buyers – our primary market. Today’s widening differential, however, reflects the rapid increase in competing exports of heavy crude from Venezuela. As well, Canadian pipelines to the United States are now running at full-bore, compounding market fears that supply will outstrip demand.
Our analysis at The Successful Investor has long identified oil-service providers – from contract drillers to storage facility operators – as offering some protection from a rising price differential for WCS. They also have the power to diversify your Canadian oil exposure beyond industry producers.
From a list of Canadian stocks we identified oil-service and storage companies already profiting from the current boom times for Alberta’s oil sands. They also come with strong profit outlooks. We then applied our TSI Dividend Sustainability Rating System. It awards points to a stock based on key factors:
- one point for five years of continuous dividend payments
- two points for more than five
- two points if it has raised the payment in the past five years
- one point for management’s commitment to dividends
- one point for operating in non-cyclical industries
- one point for limited exposure to foreign currency rates and freedom from political interference
- two points for a strong balance sheet, including manageable debt and adequate cash
- two points for a long-term record of positive earnings and cash flow sufficient to cover dividend payments
- one point for being an industry leader
Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.
More about TSI Network
TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor, and the TSI Dividend Advisor. TSI Network is also affiliated with Successful Investor Wealth Management.
What we found
Our TSI Dividend Sustainability Rating System generated seven stocks. All are headquartered in Calgary.
CES Energy Solutions Corp. CEU-Tprovides technically advanced consumable chemical and technical services from drilling to production.
Pulse Seismic Inc. PSD-T owns and licenses Canada’s largest 2D and 3D seismic-data library focused on the energy sector.
Gibson Energy Inc. GEI-Tis a midstream and terminal company that includes large-scale crude oil storage and blending terminals (such as the Hardisty terminal in Alberta).
PHX Energy Services Corp. PHX-Tprovides horizontal and directional drilling services.
Pason Systems Inc. PSI-T serves drilling contractors for oil and gas firm. It provides them with rental equipment for monitoring and managing land-based oil rigs. Its systems also let clients remotely monitor their wells.
Trican Well Service Ltd. TCW-T is a leading provider of drilling services and equipment for oil and gas exploration and production companies in Western Canada. It is the largest pressure pumping and fracturing service provider in Canada.
Total Energy Services Inc. TOT-Tprovides contract drilling services, equipment rentals and transportation services. It also serves wells while offering compression and process equipment to energy and other resource industries.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.