CALGARY—Canadian energy companies with sturdier balance sheets have begun raising dividends as the oil market shows signs of stabilizing, though analysts say investors should not expect widespread payout hikes in the coming year.

Analysts say dividend hikes are not likely to be a priority for most as low commodity prices after more than two years of low oil prices has weighed on corporate balance sheets.

“They are not out of the woods yet,” said Fadel Gheit, an analyst with Oppenheimer & Co. in New York. “Most of these companies can barely fund a dividend. Most have always outspent their cash flow.”

The average dividend yield among large-cap and integrated oil producers is now 1.9 per cent, according to data compiled by CIBC World Markets. That compares to roughly seven per cent yields three years prior, data show.

Cenovus Energy Inc. has resisted calls to raise dividends, and is hoping to conserve its $3.7 billion cash hoard as it rides out the downturn.

Husky Energy Inc. has yet to reinstate its dividend after suspending its regular payout in early 2016. The company is one of the only companies among Canadian integrated and large-cap producers to suspend its dividend, a decision that has drawn criticism from investors.

Analysts at Barclays said in a recent research note that despite Husky’s solid balance sheet and relatively large discount on its share price, “we think the market will likely not afford the company more credit for its asset base until it has reinstated the dividend.”

Paying regular dividends became increasingly popular among energy companies before oil prices collapsed in late-2014.

Companies saw dividends as a useful way to lure retail investors, who came to expect the regular payouts. When commodity prices began to slide over two years ago, many companies kept their dividends in place, despite concern among market watchers that they had reached unsustainable levels. Investors, for their part, came to expect the regular cash payments. 

In some cases falling revenues sent yields skyrocketing, in turn placing ever more pressure on company cash flows. Some company’s yields ballooned to well over 10 per cent, which then caused them to trim back rates.

“It’s a downward spiral, if you will,” Gheit said. “The more they cut the more their stock price goes down.”

Crescent Point Energy Corp., which was once considered an investor darling for its dividend-paying corporate structure, has since fallen out of favour.

The fallout can be attributed to several factors, but the company’s decision not to cut its dividend as oil prices headed into a trough in early 2016 weighed on the company’s cash flows, and ultimately led to a later cut.

Meanwhile Veresen Inc., a midstream company with a market cap of roughly $4.2 billion, has maintained more buoyant share price than many of its upstream peers.

However the company said during a recent conference call with analysts that it would delay a hike in its dividend and instead focus on putting cash flows toward investments.

The company announced in 2016 it was selling its power division to shore up its balance sheet.

“We understand that our shareholders like growth and dividends, and that is our goal,” Veresen CEO Don Althoff said during the call Wednesday.

“When we look at the investment horizon, that’s not going to occur in 2017 or really 2018. But I think 2019 is a time when we can start to have a serious conversation about that.”

Gheit says energy companies across the board are struggling to find the right balance amid a lower commodity price environment. Internally, board members and management are increasingly pressured to allocate more capital toward cost-cutting measures and so-called “organic” growth, while also maintaining a regular cash payment. 

“This is not a great position to be in,” he said.

International supermajors like Exxon Mobil Corp. and Royal Dutch Shell Plc are heavily dependent on maintaining a dividend as a means to satisfy investors, as they are not able to grow at the same rate as smaller, nimbler producers.

The same is true for oilsands firms like Canadian Natural Resources Ltd., which spends roughly $1 billion per year on its dividend according to one analyst.

On Thursday the company boosted its dividend by 10 per cent to about 27 cents per common share, the 17th annual consecutive increase for the company. Suncor Energy Inc., another major oilsands player, also rose its regular dividend by 10 per cent.

“The dividend is very tricky,” Gheit says. “Even the biggest of them all—Exxon—this is a very critical issue that they have to handle very carefully.”

jsnyder@postmedia.com