I’D BUY THIS 6.8% ENERGY STOCK BEFORE OIL PRICES SPIKE AGAIN
When oil prices swing, energy stocks usually arenât far behind. And with tensions around global supply, Organization of Petroleum Exporting Companies’ (OPEC+) production cuts, and the steady rise in demand, many investors expect another spike in prices before long.
That makes now an ideal time to take a second look at Canadian producers, especially those that can handle price volatility and still pay a strong dividend. Peyto Exploration & Development (TSX:PEY) stands out as an energy stock worth watching before oil prices climb again.
About Peyto
Peyto is a natural gas and natural gas liquids producer based in Alberta. Itâs a mid-cap name in the Canadian energy sector, with a market cap around $3.9 billion and a track record for keeping operations lean. It specializes in developing high-efficiency, low-decline assets in Albertaâs Deep Basin, and owns and operates its own gas processing infrastructure. That vertical integration helps it control costs better than many competitors.
As of writing, the stock trades around $20 per share, near the top end of its 52-week range. Despite this recent strength, the energy stock still appears attractively priced. It has a trailing price-to-earnings ratio of 13 and a forward P/E even lower. It also pays a monthly dividend, coming out at $1.32 annually, which gives it a yield of 6.8%. That kind of steady income is rare in the energy space, especially when itâs backed by solid free cash flow and disciplined capital allocation.
Into earnings
In its most recent earnings report for Q1 2025, Peyto posted revenue of $354 million, up from $314 million in the same quarter last year. Net income came in at $114 million, a significant improvement over $78 million the year before. Earnings per share (EPS) were $0.57, slightly below analyst expectations of $0.635, but still a strong result given softer energy prices in early 2025. The energy stock maintained an impressive operating margin of over 70%, continuing its reputation as one of the lowest-cost producers in the country.
Peyto has also been drilling more efficiently. Management highlighted a 40% cost reduction in horizontal wells during the quarter, which is expected to help expand output in 2025. Capital spending is expected to come in between $450 million and $500 million for the year, and the energy stock has hedged a large portion of its output to ensure stable cash flow even if prices dip again.
More to come
Beyond the fundamentals, what sets Peyto apart is its consistency. Over the past year, the energy stock is up nearly 40%. While some of that is tied to stronger gas prices, much of it reflects confidence in the companyâs ability to deliver reliable earnings and monthly dividends. Even as energy prices fluctuate, Peyto has continued to reward shareholders.
That said, there are risks. Natural gas prices remain volatile, and any dip could put pressure on margins. The energy stock did miss earnings expectations last quarter, which shows that even efficient operators can be affected by market conditions. But Peytoâs hedging strategy and low breakeven costs offer some protection. And the monthly dividend provides a reason to hold even during quiet periods.
Bottom line
If youâre looking for exposure to the energy sector but want to avoid the boom-and-bust cycle that hits more leveraged producers, Peyto offers a balanced approach. It doesnât rely on high prices to turn a profit. Instead, it focuses on doing more with less: drilling smart, running lean, and returning value to shareholders.
Thatâs why Peyto looks like a smart bet before oil prices spike again. The stock is well-managed, pays a solid dividend, and has room to grow. If youâre looking to add a dependable energy name to your portfolio, this could be the right stock at the right time.
The post Iâd Buy This 6.8% Energy Stock Before Oil Prices Spike Again appeared first on The Motley Fool Canada.
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Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
2025-07-04T20:06:54Z