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2 Oversold Dividend-Growth Stocks in the Energy Patch

The oil rout has taken a toll on just about every name connected to the broader oil and gas sector.

The damage is certainly warranted in pure-play producers with huge debt and dwindling production, but many other companies are performing well and now offer investors great yield and a shot at some serious capital gains.

Here are the reasons why I think Inter Pipeline Ltd. (TSX:IPL) and Suncor Energy Inc. (TSX:SU)(NYSE:SU) are interesting picks right now.

Inter Pipeline

Inter Pipeline transports about 35% of western Canadian oil sands production. That doesn’t sound like a great place to invest your money right now, but a closer look at the operations suggests things are rolling along quite nicely.

The company completed two major pipeline projects last year, and those assets are delivering solid results. In fact, Q4 2015 funds from operations from the oil sands division jumped 62% compared with the same period in 2014.

Oil sands companies have deep pockets and operate facilities designed to produce for decades. The current environment is forcing operators to shelve expansion projects, but output remains robust, and the oil will continue to flow despite low oil prices. Shutting down an oil sands plant is simply too expensive.

Inter Pipeline also owns a growing liquids storage business in Europe. Funds from operations in that group rose by 79% in Q4 2015 compared with the same period the year before as utilization rates rose from 84% to 97%.

The company recently raised its monthly dividend by more than 6% to $0.13 per share. The payout ratio is below 70%, so investors can sit back and collect a solid 6.3% yield while they wait for the energy sector to recover.

Suncor

Suncor is a unique name in the energy space due to its integrated business model.

The oil sands operations are best known to investors, and this area of the business is struggling right now. Fortunately, Suncor also has midstream and downstream assets that act as a revenue hedge against tough times in the oil market.

Suncor operates four large refineries that produce gasoline, diesel fuel, asphalt, and lubricants.

With oil prices at such low levels, the facilities are getting cheap feed stock on the input side and can enjoy strong margins on the finished products when crack-spreads are favourable.

Suncor also operates more than 1,500 Petro-Canada retail and wholesale locations.

The refining and marketing operations delivered Q4 2015 net earnings of $498 million, up from $173 million in the same period in 2014.

Suncor has succeeded in its buyout of Canadian Oil Sands Ltd., and that bodes well for investors in the long term as it gives Suncor 49% ownership of Syncrude’s massive resources.

The company has a solid balance sheet and is well positioned to pick up other distressed assets. As a result, Suncor should exit the oil rout as a larger and stronger player in the energy sector.

Dividend investors get a nice 3.5% yield and have an opportunity to pick up some decent capital gains once oil prices recover. The stock is not as cheap as it was a month ago, but Suncor is still attractive given the integrated nature of its business.

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Fool contributor Andrew Walker has no position in any stocks mentioned.

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