When it comes to reliable dividend-paying stocks, few companies can boast a track record as impressive as Imperial oil (TSX:IMO). In an industry known for its volatility, Imperial stands out as a beacon of consistency.
The integrated oil and gas company started paying dividends in 1981, but what really sets it apart is its uninterrupted streak of dividend increases since 1995. That’s 30 straight years of annual dividend increases – weathering oil crashes, recessions and geopolitical shocks.
A dividend growth machine
What’s even more remarkable is the pace of dividend growth. While many mature energy companies are content with modest increases, Imperial has achieved double-digit growth over several decades. Past dividend growth rates:
- 3 years: 32.6%
- 5 years: 23.1%
- 10 to 20 years: Ranging from 11% to 17%
The most recent dividend increase, announced in January, was a generous 20%, reflecting both the strong financials and management’s confidence in the company’s long-term cash flows.
Whether oil prices soared or bottomed out, Imperial continued to reward shareholders. That kind of resilience is rare, especially in the energy field.
Why the dividend is sustainable
Can Imperial Oil keep up dividend increases for decades to come? Several factors suggest this may be the case:
- Proven track record: A 30-year streak of increases is no coincidence. It reflects sensible capital allocation and a shareholder-first mentality.
- Low payout ratio: The free cash flow payout ratio over the last twelve months is only 29%, leaving plenty of room for reinvestment, buybacks or further dividend increases.
- Huge profit cushion: Imperial has more than $24 billion in retained earnings, about 18.5 times the dividends it paid last year. That financial cushion adds an extra layer of security for dividend investors.
- World-class assets: The company owns high-quality, long-lived assets at Kearl, Cold Lake and Syncrude. According to the 2025 guidelines, the activities still have decades of production track to go.
- Low Breakeven Costs: Imperial’s breakeven WTI price is below $35 per barrel, including capital maintenance and dividends. With oil currently trading around $59, the company has a solid profitability cushion even if prices fall.
A great company, but pay attention to the valuation
There is no doubt that Imperial Oil is one of the best companies in the Canadian energy sector. But as with all commodity-related stocks, the share price can fluctuate with oil prices.
After rising about 642% over the past five years, at about $122 per share, the stock is returning 2.4%. The consensus among analysts suggests that the stock is trading at a 12% premium to fair value. As a stock in a cyclical sector, it may require more active investing. For value-conscious investors, a 10 to 15% decline would provide an entry point with a better margin of safety.
Yet that premium is not arbitrary. It reflects the market’s recognition of Imperial’s stability, operational excellence and commitment to growing shareholder returns.
Takeaway for investors
For long-term investors, Imperial Oil offers a rare combination: a decades-long record of dividend growth, a disciplined payout strategy, and high-quality assets that can support production – and dividends – for decades.
While the stock isn’t cheap today, it may be worth keeping on your watchlist. After all, few Canadian energy stocks are as well positioned to generate decades of passive income.
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