Recent Buy: Husky Energy (HSE)

Husky Energy Corporate Office

courtesy of www.huskyenergy.com

Today the bad news on markets caused the TSE to slip nearly 80 points in midday trading. Commodity prices sank on reports of slower growth in the euro zone and China, which fueled concerns over the demand for Canadian resources. This was exactly the good news I was waiting for, as my order for 100 shares of Husky Energy (HSE) was filled at $25.49 per share. :)
As mentioned in my previous weekly lineup, I was waiting for a pull-back in the price of Husky, so today I was delighted to wakeup and see the TSE in the red.

Husky Energy is a stock I’ve been watching and wanting to own since I started dividend investing, but never seemed to actually buy. It was one of my 2011 Stock Picks, I chose it for the Dividend Growth Index, and again recommended it in my 2012 Stock Picks. Now I’m an owner in this company, and plan to hold this one for the long term. I’ll be buying more of Husky on the dips, and gain a nice 4.60% dividend yield while I’m waiting. With a modest 100 shares I’ll also be able to DRIP one share per quarter, and slowly build up my new but small core holding.

The Basics

husky-night_station

courtesy of www.myhusky.ca

Husky Energy  founded in 1938, is now one of Canada’s leading oil and gas producers, based in Calgary, Alberta.  Husky is listed on the Toronto Stock Exchange (TSX), under the symbol HSE. The company has the majority of its production in western Canada, where it has extensive conventional oil and natural gas assets, as well as heavy oil production, and interests in the oil sands. The company owns drilling platforms, refineries, upgrading facilities, pipelines, as well as retail gas stations. Husky also owns interests in China, with the producing Wenchang oilfield, and is currently developing the Liwan Natural Gas Project in the South China Sea under its CAPEX (capital expenditures) Program. The company also holds exploration rights offshore Indonesia, has a refinery in Lima Ohio, and holds a 50% ownership in the BP Refinery in Toledo Ohio (Info courtesy of Wikipedia).  In fact there are a few Husky gas stations here in Vancouver. If you rent a truck for moving, you will likely be fueling the diesel from a Husky pump.  According to Wikipedia, Husky produced an average of 307,000 barrels (48,800 m3) of oil equivalent per day in 2010.

It’s hard to believe Husky was over $50 per share before the 2008 and 2009 financial crisis. Its 52 week trading range is currently between $20 and $30 per share.  Husky is a $25 billion dollar company, with over $23 billion in annual revenue, and a profit margin of 9.52%. It has its debt well under control with a reasonable debt-to-equity ratio of 22.19. The sweet spot for Husky of course, is the 4.60% dividend yield.  The annual dividend is $1.20 per share, with earnings per share of $2.40. This gives Husky a 50% dividend-payout-ratio. The basics for Husky are quite attractive and appear to be quite solid.

The New CEO

In June 2010, Asim Ghosh became the new CEO of Husky. Asim is an all-star CEO who has served on the boards of companies like Procter & Gamble, and Rothmans International. He is the former Managing Director and CEO of Vodafone Essar Limited, became a Senior VP of Carling O’Keefe, and later became founding CEO of Pepsi Foods’ start up operations in India. He served in senior executive positions and as Chief Executive Officer of the AS Watson consumer packaged goods subsidiary of Hutchison Whampoa (from his corporate bio).

Asim has a stunning corporate background, and his appointment to Husky Energy is an interesting one. Hutchison Whampoa is a flagship company of Hong Kong billionaire Li Ka-Shing. In December 2010, Li Ka-Sing became the majority shareholder of Husky Energy with his purchase of 14.1 million shares ($345 million dollars) in a private placement.  The point being, the predominant shareholder in Husky is one of the richest men in the world, and the company is currently under management from an all-star CEO.

Capital Expenditure Program (CAPEX)

As well as good management, successful companies are also those that pay a reasonable dividend yield to their shareholders, but also reinvest their capital back into infrastructure and expansion. In fact Husky has been pursuing a very aggressive CAPEX program this year. Much of this CAPEX appears to be funded through new issues of common shares, preferred shares, and unsecured notes. In a recent press release of their 2012 Capital Expenditure Program, Husky states the following:

“Approximately 60 percent of the Upstream gross capital expenditure program is directed towards the Company’s growth pillars. Investment in the Sunrise Energy Project more than doubles to $610 million as construction activity ramps up and the project advances towards planned first production in 2014. Just over $1 billion is budgeted for the Asia Pacific Region as fabrication of deepwater and shallow water facilities for the Liwan Gas Project accelerates. Liwan remains on target for first production in 2013/2014.”

I’m glad to be a share-holder in Husky before these projects come online, and one of my goals was to purchase Husky before 2013 and 2014. In my opinion, with solid financials, an aggressive CAPEX program, international assets, and an all-star CEO at the helm, Husky may represent good value at its current price. I believe Husky Energy may be a sleeping giant for current investors in the future. ;)

Readers, what’s your take? Are you an owner of Husky Energy? Do you see this as a turn-around company with future potential?

25 Responses to “Recent Buy: Husky Energy (HSE)”

  1. Poor Student

    Mar 22. 2012

    You make a convincing case, but you know I drank the Suncor Koolaid. I need to diversify out of oil but if the price of Husky goes lower I might need to consider them.

    In Ontario I think I might have come across a Husky retail station but there are not plentiful by any means. I do not know if they will be able to penetrate the market but if they can then they can grow a lot by opening more retail stations.

    Reply to this comment
    • The Dividend Ninja

      Mar 22. 2012

      Poor Student Husky and Suncor are very different companies, like apples and oranges. I’d have no hesitation to buy Suncor either, they are both great investments. I like Husky for both the global and asset diversification. ;)

      Reply to this comment
  2. Michel

    Mar 23. 2012

    I like HSE also, but I haven’t bought it yet. Do you think it might become a dividend grower again? Their dividend is still the same as pre-2008. What other canadian integrated oil company would you compare it to? Thanks.

    Reply to this comment
    • The Dividend Ninja

      Mar 23. 2012

      Hey Michel this is a good point. I don’t think we will see any significant dividend growth in Husky, until we see a significant increase in share price. The dividend is already very generous at these price levels.

      2013 to 2014 is when the income from their recent CAPEX will start to flow, so I wouldn’t expect any dividend increase until after that time. For myself, I am attracted to the fundamentals, lower share price, and generous yield.

      Cheers!

      Reply to this comment
  3. Andrew

    Mar 23. 2012

    Good one, DN! This one is going on my watch/shopping list.

    Reply to this comment
  4. The Student Investor

    Mar 23. 2012

    If you had just bought the shares of HSE in March 6th for around $25 a share (Equals sweeter deal). Overall, you still had buy on the pull back which went great. Today’s headline, commodities are improving on the TSX, you should see a 1.17% return on your HSE investment. :)

    Reply to this comment
    • The Dividend Ninja

      Mar 23. 2012

      Student Investor, Yah don’t you just love the news? Without bad news every once in a while, I wouldn’t be able to buy my favourite stocks on sale. As soon as I saw that headline I knew I had the stock at my price point. ;)

      I actually wish I bought in January at $24 per share, or back in October 2011 at $22 per share.

      Cheers!

      Reply to this comment
  5. My Own Advisor

    Mar 23. 2012

    Nice work Ninja. Now we’re both owners!

    I think you’re wise to DRIP it, while you can. After 2014, the dividend should rise by at least 5%. Like you, I can get paid to wait at over 4% and pay no mutual fund management fees. This keeps us ahead of inflation, but you already know that :)

    What’s the next buy?

    I’m looking at more BIN, if the price dips lower. I figure waste management services are recession-proof. Not high yield, but I have a feeling you’re always going to get paid by these guys. Their dividend went up 12% for 2012 and I like that.

    Reply to this comment
  6. youngandthrifty

    Mar 23. 2012

    I’m drinking the HSE Kool Aid too!

    I’m happy with it so far. Can’t beat the dividend for the price right now.

    Reply to this comment
  7. Kolton @FMT

    Mar 24. 2012

    Not that I didn’t trust your statistics, but I went ahead and looked at HSE financials myself, and oh my, they are quite impressive! I’m truly considering buying because I live in the US, and a dividend like this will definitely keep my portfolio diversified. Plus, $25 a share is quite cheap. I can envision it easily bumping up to AT LEAST $70.

    Reply to this comment
    • The Dividend Ninja

      Mar 24. 2012

      Hi Kolton,
      Thanx for dropping by! Well yes the fundamentals are indeed good for Huksy Energy. It’s also the combination of a foreign majority shareholder stake, and all star CEO that are interesting moving forward – Husky will be able to become an international player instead of just being a Canadian company. That’s where I think the future growth for this company will be.

      I think $70 is very optimistic IMO, but just in case you are right, I’ll probably be adding more on the dips. I could see a $35 trading range in the next year or two, and perhaps eventually back up the $50 price-point it was before. $30 is the next support level, so let’s see how it does getting to that level first. ;)

      Cheers!

      Reply to this comment
    • The Dividend Ninja

      Mar 24. 2012

      btw Kolton just to let you know that Husky is listed only on the TSE. So it will be considered foreign content unless held in a registered plan (401k ?).

      Also the dividends for Husky are not automatically reinvested like most stocks. You have to phone your broker every quarter and ask for your Husky dividends to be reinvested – Husky will mail out this request to shareholders every quarter. It may be different for you as a foreign investor. Even if you couldn’t DRIP the stock, you would still get the dividends, and likely have some nice share price appreciation in the near future. ;)

      Cheers

      Reply to this comment
  8. Hi Ninja,

    Its good to see you do so much homework before investing. I am one those who invest primarily into MFs. I would get a lot to learn from you :)

    Reply to this comment
    • The Dividend Ninja

      Mar 27. 2012

      Hi Karunesh, Thanx for dropping by :) I would suggest even if you’re not ready to invest in stocks directly, at least give some consideration to index funds and index ETFs, instead of mutual funds. You will save a small fortune on fees (advisor fees, fund fees, management expense ratios, and trailer fees). These fees realy eat into your profits over the long term.

      btw love your site!

      Cheers

      Reply to this comment
  9. Peter

    Apr 10. 2012

    I bought HSE recently as well, but TDWH says they can’t DRIP it. How are you doing the DRIP on this one Ninja?
    Thanks

    Reply to this comment
    • The Dividend Ninja

      Apr 10. 2012

      Hi Peter , I am also with TDWH and the rep you spoke with is not familiar on the DRIP option with Husky.

      It is true, Husky (HSE) cannot be enrolled in the DRIP with the broker. So if you phone them up and say enrol me in the DRIP for Husky, they will tell you that Husky is not part of the DRIP program.

      However, each quarter Husky will mail out a request of what you want to do with the dividend. The default is receiving the dividend as cash. However they also give you the option of allowing you to DRIP with your discount broker. You simply phone the broker (i.e. TDWH) each time you receive the letter, and they have to honour the DRIP. It would be nicer if Husky simply allowed DRIPs, but for whatever reason which is beyond me – they don’t. Anyway since I’ve seen the letter – I know this is how its done. Maybe I need to write Husky an email?

      If you have any problems with this, let me know and I will forward your request to a higher-up in TDWH. ;)

      Cheers!

      Reply to this comment

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