The new paradigm for the energy industry is to invest less money into developing new properties and more on shareholder returns in the form of dividends and stock repurchases, explains Bryan Perry, a leading growth and income expert and editor of Cash Machine.
The unfavorable political climate toward fossil fuel producers drove this change and, in doing so, has resulted in the energy sector outpacing all other sectors for 2022.
One of the key corporate initiatives has been the establishment of variable dividend policies where companies report a dividend composed of a fixed amount, plus an additional amount that reflects free cash flow for the prior quarter.
There are but a handful of companies that have established this payout policy including Coterra Energy Inc. (CTRA), which was formed by the all-stock merger of Cabot Oil & Gas Corp. and Cimarex Energy Co. in October 2021 to become one of the largest U.S. energy companies today.
Coterra produces 75% natural gas, of which only 25% is hedged, so it’s a nice way to get exposure to U.S. natural gas prices. In 2021, global natural gas consumption reached a new all-time high. Continued demand for liquified natural gas from global customers is fueling strong sales and profit growth for Coterra.
Coterra is now the fourth-largest producer of natural gas in the United States with vast reserves for both oil and gas. For 2022, Coterra is forecast to report revenue growth of roughly 160% to $8.93 billion and earnings of $5.12 per share, up 127% from 2021. The company has surpassed sales and earnings forecast for the past two quarters and raised the dividend substantially as the policy dictates.
In August, Coterra’s Board of Directors approved a total quarterly dividend equal to $0.65 per share ($0.15 base, $0.50 variable). The shares are well off the yearly high of $36 to where the dividend yield is now a hugely attractive 9.04%. The next ex-dividend data come around November 12.
Let’s put this super well-positioned energy company to work in our Accelerated Income Portfolio and look for big returns both in income and growth going forward. Buy Coterra Energy under $32.