Canada's oil patch will keep gushing dividends and payouts in 2023. That's according to analysts at Scotiabank Global Equity Research who say the high price of crude and disciplined spending have given companies a "significant margin of safety" to keep rewarding shareholders.
Such rewards were in focus as the biggest names in the sector reported financial results in recent weeks.
Cenovus Energy (CVE.TO)(CVE) announced plans to triple its base dividend when it reported first-quarter earnings on April 27. Suncor Energy (SU.TO)(SU) said on May 9 that it will hike its dividend to the highest level in the company's history as of June 3. Energy peers, including Crescent Point Energy (CPG.TO)(CPG), Enerplus (ERF.TO)(ERF), Paramount Resources (POU.TO), and Tourmaline Oil (TOU.TO), also sweetened their shareholder perks as they announced first-quarter results.
North American benchmark West Texas Intermediate (WTI) (CL=F) oil traded above US$115 per barrel on Wednesday. In a note to clients, Scotiabank analyst Jason Bouvier estimated a US$44 per barrel median breakeven oil price for producers in 2023, up one dollar from the previous year.
"Generally, the US$1 per barrel increase in breakeven WTI prices was driven by higher oil sands royalties, increased dividends, and cost inflation," Bouvier wrote, noting a US$65 per barrel "margin of safety" at current prices.
"Industry's focus on capital discipline and operational efficiency is likely to support further increases in dividends and share buybacks," he wrote. "We expect balance sheet improvements will continue, but once targets are reached, we think special/variable dividends will be initiated (likely in 2023)."
Bouvier says companies with high free cash flow yield, lower payouts, and those nearing their debt targets have the greatest potential to increase their dividend. These include Cenovus, Imperial Oil (IMO.TO) (IMO), and Ovintiv (OVV.TO)(OVV) among the large-cap companies, as well as Crescent Point and Vermilion Energy Inc. (VET.TO)(VET) among the small-to-mid cap producers.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.