Natural gas exploration and production company Chesapeake Energy (CHK) is facing some auspicious tailwinds now that commodity traders' sentiment is starting to swing in favor of increased natural gas prices in the latter half of 2011. Nat gas prices have remained relatively stagnant this year compared to volatile crude prices. Despite yesterday's weakness in crude, the general consensus remains that high oil prices will translate to greater demand for natural gas -- if that's the case, Chesapeake would be a major beneficiary.
In the mean time, investors are benefitting from the stock's 16.6% dividend increase last week. The move brings Chesapeake's dividend to 8.75 cents per share. Chesapeake lays claim to more than 13 million acres of properties that can generate a mix of natural gas and oil -- the company has been skewing its focus onto those that have more liquid in-ground to adapt to the relative strength in oil compared to its core nat gas business. As a short-term strategy, it's probably a wise one.Because Chesapeake is more aggressive than most peers (both financially and operationally), the company hit some difficult times back in the depths of 2008's recession as its leveraged balance sheet and seized credit market left it with limited financing options. While management was able to get creative to solve the company's cash shortfall, a future cash flow problem could put the squeeze on the company's dividend. Chesapeake, one of the top holdings of T. Boone Pickens' BP Capital, shows up on recent lists of 11 Energy Stocks Hedge Funds Love and 2 Natural Gas Stocks to Buy.
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