2 Energy Stocks with Attractive Yields and Covered Call Income Plays

These 2 oil and gas stocks have attractive dividend yields and also offer very good covered call income opportunities. Both companies are profitable, their valuations are cheap, and they provide attractive dividend income yields.

Moreover, their related covered call income opportunities offer excellent short-term potential upside. The first, Crescent Point Group (CPG) offers a potential upside of 18.6% by selling one-month forward covered calls at a strike price that is out of the money. And this does not even include the dividend income.

The second, Cenovus Energy (CVE), has a potential 23.9% upside, including the out-of-the-money covered call income.

Crescent Point Group (CPG)

Crescent Point Group (CPG) is an oil and gas producer in Western Canada and in the U.S. (North Dakota and Minnesota). The company is now very profitable and earnings per share (EPS) this year are forecast to hit $2.86.

This puts the stock on a forward P/E multiple of 2.3x. However, next year analysts forecast that with projected lower oil and gas prices, its earnings will fall. They now see EPS declining 40% to $1.76.

However, even if that happens, the resulting higher P/E multiple is just 3.9x. That is still incredibly inexpensive. So that might now mean the stock will take a hit and in fact, it could be relatively stable.

Moreover, the stock also pays an annual dividend of 24.52 cents per share, giving the investor an annual yield of 3.76%. In fact, the company recently just raised the dividend.

All this makes CPG stock, at $6.65 per share, a reasonably good candidate for an out-of-the-money play. Here's why. For $2000, we can actually buy 300 shares (i.e., $1,995) and then sell 3 out-of-the-money covered call options. Let's look at that.

The Barchart option chain below shows that the Aug. 19 call options offer the $7.50 strike price calls at 38 cents at the midpoint.

Here is what that means. We can sell 3 covered call options at the $7.50 strike price and immediately receive $38 per call contract, or $114.00, less any commissions. That is a very good income, since we only paid $1,995 for the underlying stock, effectively a monthly return of 5.714%. These monthly options can be repeated, so the theoretical annual return is 68.57%.

This assumes the stock does not immediately rise to the $7.50 strike price by Aug. 19 or earlier. But even if it does, the investor collects the capital gain, which will be 12.78% (i.e., $7.50/6.65 cost), or $2,250-1,995 = $255.

So the total return, even without the dividends will be 18.49% (12.78% + 5.71%). In other words, the investor collects $255, plus the $114 from the covered calls, or $369. This is a return of 18.49% on the investor's cost of $1,995.

Cenovus Energy Inc (CVE)

Cenovus Energy (CVE) is a Canadian integrated oil and gas company based in Calgary. The company is very profitable and is forecast to produce earnings of $3.40 per share this year and $3.48 next year. That puts it on a cheap forward P/E multiple of just 4.8x for 2022 and 4.7x for 2023.

Moreover, CVE stock has a 2.0% dividend yield. Recently Cenovus hiked its dividend to 8.12 cents per quarter, putting it at an annual rate of 32.48 cents annually.

Moreover, the stock offers a good covered call income play opportunity. For example, the following chart shows that the Aug. 19 $20 calls are priced at 20 cents.

This means that the investor will receive $20 for every call contract. So for every 100 shares that cost $1,630, the investor gets to receive $20 for selling the $20 strike price calls that expire on Aug. 19.

This is a return of 1.23% for the month or 14.76% on an annual basis. Even if the stock rises to $20 per share from $16.30, the investor keeps the 22.7% return. The total potential upside of 23.93%  is a very good opportunity for most investors. This is especially since the stock costs less than $20 and the investor can sell many covered calls.

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