Crescent Point Energy (TSX:CPG)(NYSE:CPG) and Cenovus Energy (TSX:CVE)(NYSE:CVE) have a lot in common.
Both are key players in Canada’s oil sands and happen to be roughly the same size.
Crescent Point has a market capitalization of about $3.8 billion, while Cenovus is a bit larger, boasting a market capitalization a little over $13 billion, but both remain well below the size of larger oil sands operators like Suncor, Canadian Natural Resource, and Imperial Oil.
But the other thing both companies have in common is that shares of both have sold off sharply since oil prices collapsed back in 2014.
Both CPG stock and CVE stock have traded at 10-year lows within the past 24 months. If you have a bullish view on the oil sands, you probably also hold the view that both companies offer solid, long-term contrarian investments.
But here’s why if I had a choice, I’d pick Cenovus stock over Crescent Point stock today.
Cenovus has exercised more prudence in managing its balance sheet
CVE stock only pays shareholders an annual dividend yield of 1.76%, while Crescent Point’s dividend yield sat at 5.05% heading into Friday’s trading (more on that below).
But one of the biggest differences between the two companies today is that Cenovus has taken a conservative approach to managing its balance sheet over the past couple of years, while Crescent Point has been playing it more aggressive and now runs the risk of finding itself in a precarious situation.
Cenovus has taking the prudent approach to pay down more than $3 billion in debt since the summer of 2017; meanwhile, Crescent Point has been actively raising additional capital from the markets in order to stave off production declines.
Crescent Point may be forced to cut its dividend for a third time since 2014
That may have been enough to keep some shareholders happy over the short term, but if oil prices were to experience a prolonged setback, the company could be forced to cut its dividend for a third time since 2014.
There’s no doubt that a sizable percentage of Crescent Point’s shareholders are in the stock right now for its +5% dividend, and if it gets cut or even suspended altogether, that could have the bears chasing the bulls for the exits.
Crescent Point is more exposed to the risk of lower oil prices
Lately, there has been more talk about higher rather than lower oil prices, but keep in mind that the best chance the Trump administration has of being re-elected in 2020 is if the economy continues to improve. Higher energy prices will only have the opposite effect, and many would argue that higher energy prices have acted as the catalyst to send the U.S. economy into its previous two recessions.
Meanwhile, oil from Alberta continues to sell at record discounts compared to U.S. prices. That’s not only really bad news for Crescent Point, but it’s also not the worst thing in the world for Cenovus.
Cenovus, as an integrated energy producer, gets the benefit of buying the heavily discounted Canadian crude as a cheap input for its refining operations.
Bottom line
Both are fine long-term investments, particularly when you consider that the majority of Crescent Point’s assets aren’t even in production right now.
But if you were going to put a gun to my head, I’d be putting my money in CVE stock.
Fool contributor Jason Phillips has no position in any of the stocks mentioned.