Martin DaviesPeyto Exploration & Develop.PEY.TOTOP PICKNov 11, 2015

Dividend of 12% is safe and managers are great. They're making capital investments to sustain production. Shares have been effected by weakness in natural gas prices.

You get growth. Dividend is 10.1%, yet has excess cashflow after that. He also sells calls on it. Doesn't see capital appreciation. Uses it as an attractive income vehicle.

The new gas line will bring 2 billion cubic feet of LNG to the coast but they won't see the impact of the new pipeline until 2025. This makes for a good future. The dividend of 9% relies on the underlying commodity prices for the company so therefore the stock price can be volatile.

Owns shares in income fund. Dividend is very safe at ~9%. Recent M&A good for business. Getting more interested in natural gas stocks given LNG future in Canada. Strong management team. Great stock for dividend investors. 

PEY has a solid balance sheet and a long history of growth. It has seen many cycles already, and was one of the first companies to convert into an income trust way back (which did benefit shareholders). It trades at only 7X earnings and barely 4X cash flow. The dividend is attractive and was more than doubled late last year. It is not guaranteed of course but is well-covered by cash flow. Payout ratio is 21%. We like management and its leverage to gas prices is very high. Some fault it because of its hedge program on prices, but of course this does also reduce risk of price volatility.
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Buying shares recently.
Strong company with good dividend.
Expecting higher natural gas prices.
Hedging allows for safety on dividend.
Excellent management team.

If we stay at the current gas price for the next year, dividend is not sustainable. PEY has a good hedge position, and they're actually getting good gas pricing, so it has a buffer. He owns it in an income fund, making about 18% after selling calls. Not in his main fund, as all he wants to own is Canadian heavy oil.

Yields 11.6%. Not for the feint of heart. A dryer gas player. Medium-term this looks good, and it's a good way to play western Canadian gas. Buy a partial position, but expect some rough days short-term as you collect that 11.6%.

Calgary based oil & gas company.
Most of production is natural gas.
Weak natural gas prices causing worries for investors.
Unsure of dividend sustainability. 
Prefers other natural gas names in sector. 

If you're willing to endure another year of miserable natural gas prices, it should be fine. He'd prefer to pay the premium for TOU and get the inventory depth, especially if you're sitting on a tax loss.

LNG Canada is bringing a significant export opportunity for all Canadian nat gas companies towards the end of 2025. This will be transformational. He likes all Canadian nat gas producers on a volume basis. His preference is ARX, as it's diversified with undeveloped land. Prefers PEY to BIR; management is stronger, though its dividend will be subject to commodity prices, can grow production long-term.