Q: I'm looking at PEY and FRU for dividend income, and possibly a little appreciation. Their recent price doesn't seem to be too effected by gas/oil prices going down -or are they perhaps offset by interest rates going down at the same time? Could you compare these; do you have a preference? How high a risk are they? What is a good entry point for both? Thanks!
5i Research Answer:
Interest rates can help the sector, and lower rates make all dividends more attractive. PEY has some hedges in place which helps stabilize cash flow. Because of the cyclicality of the industry, both should be considered higher-than-average risk. Both have cut dividends in prior cycles. PEY is cheaper on valuation, but FRU as a royalty company does typically get a premium (still cheap, though). PEY is more leveraged (2X cash flow vs 1X). PEY is expected to have a stronger rate of growth over the next two years. With better expected growth and a lower valuation, we would side with PEY in the $14.25 range. FRU if bought in the $13.25 range.