When power shares drop, traders typically run for the exits. However generally, a drop is definitely a present. That’s the case with Cenovus Vitality (TSX:CVE). Down about 30% within the final yr, this Canadian power heavyweight now trades at what many long-term traders would name a discount. With rock-solid operations, an 11% dividend hike, and development initiatives already in movement, it’s value a more in-depth search for anybody searching for worth in a unstable market.
Into Cenovus
Cenovus is an built-in power inventory. Which means it does a little bit of the whole lot, from oil sands, refining, pure gasoline, and even offshore manufacturing. This helps cushion towards wild swings in oil costs. In its most up-to-date earnings report, the corporate reported $13.3 billion in income for Q1 2025, up from $12.8 billion within the earlier quarter. Upstream manufacturing hit 818,900 barrels of oil equal per day, with downstream crude throughput at 665,400 barrels per day. That stage of consistency issues.
It additionally generated $2.2 billion in adjusted funds circulate and $983 million in free funds circulate. That’s the sort of monetary muscle that may assist dividends and share buybacks. And that’s precisely what occurred. The board hiked the bottom dividend by 11% to $0.80 yearly and purchased again over 10 million shares. All whereas maintaining internet debt manageable at simply over $5.1 billion.
Extra development to return
What makes this much more spectacular is that it’s all occurring whereas the inventory is down sharply. Investor sentiment round power has cooled, largely as a result of oil worth jitters and considerations over world demand. However the fundamentals haven’t modified a lot. Cenovus nonetheless has high-quality property, particularly in oil sands, the place it operates among the most effective steam-assisted gravity drainage (SAGD) initiatives within the nation.
Tasks like Narrows Lake and West White Rose are progressing effectively. Narrows Lake started steaming in April, with first oil anticipated by Q3 2025. West White Rose is 90% full and anticipated to begin producing in mid-2026. These are low-cost, long-life initiatives that can increase money circulate with out blowing up capital budgets.
Its offshore and standard property are additionally holding regular. Manufacturing from the Terra Nova and SeaRose platforms helped raise offshore output to 68,800 barrels of oil equal per day. In the meantime, the refining aspect of the enterprise has bounced again. In Q1, U.S. refining had an adjusted market seize of 62%, up from 52% within the earlier quarter. That’s an indication that its amenities are operating extra easily and effectively.
Silly takeaway
After all, there are dangers. Oil costs are unpredictable, and refining margins can get squeezed. Cenovus additionally carries a large debt load, although it’s effectively inside investment-grade territory. At current ranges, Cenovus is buying and selling at 12.8 occasions ahead earnings, and its dividend yield sits above 4.3%. That will not sound flashy, however the dividend is effectively coated, and the potential for capital positive aspects provides a second layer of upside. Administration has been clear that after the debt goal is hit, all extra free funds circulate will return to shareholders.
In different phrases, this isn’t a development story or an revenue story. It’s each. And proper now, the market is pricing it prefer it’s neither. So for those who’re on the lookout for a inventory to purchase and maintain for many years, that is the sort of identify that matches. It’s acquired the property, the administration, the dividend, and a transparent plan. And better of all, it’s down 30%. Not as a result of something’s damaged, however as a result of sentiment has soured. For affected person traders, that’s typically when the most effective alternatives seem.