Topic: Dividend Stocks

ENCANA CORP. $8.97

ENCANA CORP. $8.97 (Toronto symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 849.9 million; Market cap: $7.6 billion; Price-to-sales ratio: 1.5; Dividend yield: 0.9%; TSINetwork Rating: Average; www.encana.com) owns four key properties: Montney (B.C.), Duvernay (Alberta), and Eagle Ford and Permian (both in Texas). In addition to natural gas, these fields produce large amounts of oil and natural gas liquids, such as propane and butane. That cuts the company’s reliance on gas.

In the three months ended March 31, 2016, Encana produced an average of 383,400 barrels a day (66% gas, 34% oil and liquids). Due to recent asset sales, that’s down 10.9% from 430,100 barrels a year earlier. The company’s four main properties now supply 70% of its overall production.

Low oil prices have forced Encana to write down the value of its properties by $607 million (all amounts except share price and market cap in U.S. dollars).

As well, the company’s realized gas price (after hedging) fell 54.4%, while its oil price fell 6.0% from a year earlier. As a result, it lost $130 million, or $0.15 a share. A year earlier it earned $19 million, or $0.03. Cash flow per share dropped 81.5%, to $0.12 from $0.65. Revenue declined 39.7%, to $753 million from $1.25 billion.

Encana continues to cut jobs and improve the efficiency of its drilling operations. These moves should save it $550 million in 2016.

As well, the company recently retired $489 million of its long-term debt. That should cut this year’s interest costs by $30 million. Encana’s long-term debt is now $5.4 billion, or a high 94% of its currently depressed market cap. However, it does not have to begin repaying these loans until 2019. The company also holds cash of $222 million.

Encana still plans to spend between $900 million and $1 billion on exploration and upgrades in 2016. That’s down nearly 60% from $2.2 billion in 2015.

The company has locked in selling prices for 85% of its expected gas production for the rest of 2016 at $2.67 per thousand cubic feet. That’s 23.6% more than the current price of $2.16. Encana has also hedged 75% of oil output at $55.61 a barrel, or 24.9% above the current price of $44.54.

The stock trades at 8.8 times Encana’s expected 2016 cash flow of $0.79 a share. Cash flow in 2017 will probably improve to $1.43 share. The stock trades at just 4.9 times that forecast. The $0.06 dividend yields 0.9%.

Encana is a buy.

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