Did you know that only 0.4% of the Jan 1, 2017 TSX oil and gas dividend payers by way of market capitalization have a yield of 4% or greater? Did you know that the 4% or greater yield players now represent $10 billion market capitalization, down 94% from $171 billion of market capitalization in Jan 2015?
I know I didn’t. Luckily for me, I have the advantage of the Stream team to make my research broader and better. I wrote last week’s blog on Russia’s hacking including to support the anti-fracking movement following a comment from Aaron Bunting (Principal, CFO). And today’s blog came because Ryan Dunfield (President, Managing Principal) came in my office and asked me these yield questions. Once I got over the shock of the data, it was time to write this blog.
Before we look at charts, here are those shocking data points at Jan 1, 2017.
- $321 billion market capitalization of oil and gas stocks.
- $250 billion (78%) of the total market capitalization pay a dividend, vs $71 billion (22%) of the total market capitalization do not pay a dividend.
- $240 billion (96%) of the dividend market capitalization has a yield of <4%
- $10 billion (4%) of the dividend market capitalization has a yield of 4% or more
- A year ago, there was $57 billion of dividend market capitalization with a yield of 4% or more, and two years ago, there was $171 billion.
The first graph shows the market capitalization of oil and gas stocks at Jan 1, 2017 in total, and the market capitalization of non-dividend payers, dividend payers, dividend payers with a yield of <4%, and dividend payers with a yield of 4% or more. The number labels on the graphs are the Jan 1, 2017 data points noted in the above bullets. We went back to Jan 1, 2005 and included companies no longer in existence like the oil and gas royalty trusts.
Source: Bloomberg, TSX, Stream Asset Financial
The problem with the first graph is scale as we had to scale up to include the total market capitalization of all the TSX listed oil and gas stocks. The second graph only shows the market capitalization of the oil and gas stocks with a yield of 4% or more. It shows the shocking drop of $171 billion market capitalization for this group at Jan 1, 2015 to only $10 billion on Jan 1, 2017, which is the lowest point in the past 15 years.
Source: Bloomberg, TSX, Stream Asset Financial
Lastly, the third graph breaks down the 4% or greater yield oil and gas company universe to show the number of companies in this group and the average yield. It shows that on Jan 1, 2015, there were 29 oil and gas companies with >4% yield with an average market capitalization of $5.9 billion. This compares to Jan 1, 2017 that had 6 oil and gas companies with >4% yield with an average market capitalization of $1.6billion.
Source: Bloomberg, TSX, Stream Asset Financial
There is a big picture investor theme at work and its not just for oil and gas investors. Targeted total returns are going lower, and in great part due to the low yield environment. A few weeks ago (Dec 21), CalPERS announced they were lowering their total return target from 7.5% to 7.0% on their $304 billion portfolio [LINK], The reality is that investors have moved to lower total return expectations.
There is an added element for oil and gas investors in Canada. The above graphs show the lack of yield, which means that oil and gas investors have shifted their total return expectations over the past few yield from yield being the bigger component of the total return to now being the smaller part of the total return target.
It is getting almost impossible for any investor to find 4% yield on the TSX for oil and gas stocks, especially if investors are looking for mid/large cap companies. There are too many aspects of this food for thought data to cover in one blog, so we will have more blogs on this subject. But the reason for our blog now is that we expect the spotlight to increase on yield for all stocks, including oil and gas, especially if the Federal Reserve raises interest rates 2 or 3 times in 2017.