Baytex Energy Trust (NYSE: BTE)
Last month we alluded to the fact that President Obama would crank up spending on infastructure, and that there would be some great opportunities in the energy sector in 2009. Well, with the recent market volatility rocking the financial markets and cash earning virtually no interest, one source of income that investors can take advantage of is reliable dividends.
Canada's energy trusts are paying handsome monthly dividend distributions right now to shareholders.
Baytex is one such trust. Baytex is a conventional oil and gas income trust with the majority of its operations located in the rich Western Canadian Sedimentary Basin. Baytex has just announced a cash distribution of $0.18 per unit in respect of January operations. This will be paid on February 17th. This is the same as that declared in December. So they have not decreased their dividend payment, unlike many blue chip companies.
The annualised distribution of $2.16 represents a cash-on-cash yield of approximately 14.3% based on the closing price of Baytex trust units of $15.11 on the TSX on January 14, 2009. This is a VERY attractive yield in the current market conditions.
Baytex has 12.3 years of proven plus probable reserves. Heavy oil is the main asset in Baytex’s portfolio, making up 60% of the company’s output. Heavy oil has very low exploration and development costs, so Baytex can rebuild its reserves inexpensively, as they are depleted. This low cost production model sets Baytex apart from other leading firms in the industry, and should help fuel its future growth.
Their Peace River Oil Sands Project in Northern Alberta, also known as “Seal”, is one of their capital projects investors are quickly starting to take notice of. With 67,000 net acres of long-term oil sands leases at Seal, its estimated resource potential is 50 million barrels of oil. Baytex has plans to convert Seal into a commercial-scale thermal project within the next three years, which will offer the
trust even higher rates of return. This project will add a significant amount of value for shareholders over time and the market is starting to recognise this.
Baytex is also on the acquisition trail, to further fuel the company's growth. The firm acquired Burmis Energy Inc., a junior exploration and production company in Canada. This acquisition should boost Baytex’s daily oil production and improve their product mix. The trust continues to increase its reserves with strategic acquisition and capital programs. Cash flow from operations has increased nearly five-fold during Baytex’s history as a trust.
This company fits our mantra for 2009 - quality, quality, quality. Its balance sheet is strong. It is well managed and Debt-to-cash flow is less than one-third of what it was in 2004.
The stock price has been pulled down by the doom and gloom in the commodity sector, but it is still a worthy company. We believe it is drastically under priced right now. It is trading at levels not seen in years. The price of this stock reached a new 52-week low of $9.81 on 12th December 2008. It has since recovered some ground, but is still way below its high of $35.20.
It could be the perfect time to consider adding Baytex to your portfolio. If energy prices take an upward swing, as we suspect, then Baytex will deliver great profits in addition to the steady income stream.
Buy Baytex Energy Trust (NYSE: BTE) up to $13 and enjoy your dividends as you wait for the stock price to recover.