The 3 Best Dividends From the Energy Patch

These three companies offer dividends you can actually rely on, and yield up to 6.2%.

| More on:
The Motley Fool

If you’re looking for dividends, some of Canada’s highest yielding companies can be found in the energy sector. But investing in energy companies is something you should be very careful about doing. After all, many of them are spending heavily on new projects, have risky balance sheets, or pay a dividend that they cannot afford.

This is of course not ideal if you’re looking for steady, reliable dividends you can count on. Fortunately, there are some exceptions and three are examined below.

1. Cenovus Energy

With any energy company, there is always a risk of declining energy prices. So what’s the best way to mitigate this risk? One way is to invest in a low-cost producer. The great thing about these companies is they are still profitable even at the bottom of the cycle. And few companies produce oil with costs as low as Cenovus Energy (TSX: CVE)(NYSE: CVE).

To illustrate, last year operating expenses for Cenovus’s oil production totalled $15.65 per barrel. And this was in a year when the company had numerous operational issues at its Foster Creek operations.

Those same operational issues have held back the share price of Cenovus – as a result its dividend yields a healthy 3.2%. And this is one of the lowest-risk dividends you can find in Alberta.

2. Baytex Energy

If you’re looking for a bigger dividend, you can find one with Baytex Energy (TSX: BTE)(NYSE: BTE). The company has just raised its monthly dividend to $0.24 per share, and as a result Baytex now yields 6.2%.

That being said, there is one major thing to be concerned about with Baytex’s dividend: it exceeds net income and free cash flow. The company makes up for this difference partly by offering a 3% incentive to shareholders willing to take their dividend in additional shares, rather than cash. So if you’re looking for some monthly income, Baytex offers a juicy yield, as long as you’re willing to accept a small penalty.

3. Canadian Oil Sands

Perhaps the energy patch’s best dividend comes from Canadian Oil Sands (TSX: COS). Not only is the yield a healthy 6%, but also the dividend of $1.40 per share per year is lower than the company’s net income.

Canadian Oil Sands has such a high yield mainly because its stock price remains depressed – it’s still trading down from where it was five years ago. This is due to seemingly recurring operational issues at the Syncrude operations. This is also not a company to buy if you’re looking for growth (sales volume actually shrank by 7% last year).

That said, if you’re looking for a high, reliable dividend from the energy patch, this company is likely your best bet.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair has no position in any stocks mentioned.

More on Investing

Happy family father of mother and child daughter launch a kite on nature at sunset
Investing

3 Soaring Stocks to Hold for the Next 20 Years

These three stocks are good bets for the long haul, given their healthy long-term growth prospects.

Read more »

grow dividends
Tech Stocks

Celestica Stock Is up 44% Since Earnings: What Investors Need to Know

Celestica continues to benefit from strong demand and production efficiencies, yet the stock remains undervalued.

Read more »

A plant grows from coins.
Investing

2 Dividend Stocks Paying 5% or More That Could Beat the Market in 2024 and Beyond 

Here are two top dividend stocks long-term investors may certainly want to consider for their yields and growth profiles right…

Read more »

edit Balloon shaped as a heart
Dividend Stocks

Love Value Stocks? 2 That Are Screaming Buys in May 2024

Patience can pay off by investing in these two value stocks with nice dividends and the potential to turn around.

Read more »

healthcare pharma
Tech Stocks

What’s Going on With WELL Health Stock?

WELL stock (TSX:WELL) made strong moves once again, with record earnings and even higher guidance for 2024.

Read more »

Senior Couple Walking With Pet Bulldog In Countryside
Dividend Stocks

2 Everlasting Canadian Stocks for Your RRSP

The Canadian National Railway (TSX:CNR) stock is worth owning for the long haul.

Read more »

money cash dividends
Stocks for Beginners

Is TD Stock the Best Dividend Stock for You?

Shares of TD stock (TSX:TD) plunged on the news of a money laundering probe. But could this mean it's a…

Read more »

exchange traded funds
Investing

New to Investing? Get Started With This Easy, Hands-Off Method

Vanguard S&P 500 Index ETF (CAD-hedged) (TSX:VSP) is a glorious first investment candidate for beginner investors.

Read more »