There is no clear visibility where oil prices are headed from here. Forecasts are all over the place as oil prices remain stuck in a range this year. In this uncertain environment, however, there is a silver lining for dividend investors who are looking for opportunities in energy stocks.
Some of the top energy companies in Canada are fast adopting to this new demand-supply balance, which has stopped the crude oil price from crossing above US$50 a barrel for a sustainable period.
These companies are constantly cutting operating costs, using efficient technologies, selling assets where they can, and expanding output from where they can make the most money.
This new leaner and more efficient operating environment is unlocking new opportunities for investors who may want to look back at this sector after years of dismal performance.
The latest evidence came from the second-quarter earnings announcements when some companies produced impressive numbers that exceeded analysts’ expectations on income, cost cutting, cash flow, and production.
Today, I’ve shortlisted five top energy stocks that you may want to consider for your income portfolio.
| Stock | Dividend Yield | Market Cap |
| Canadian Natural Resources Limited (TSX:CNQ)(NYSE:CNQ) | 2.85% | $49.169 billion |
| Cenovus Energy Inc. (TSX:CVE)(NYSE:CVE) | 1.95% | $12.859 billion |
| Suncor Energy Inc. (TSX:SU)(NYSE:SU) | 3.12% | $69.262 billion |
| TransCanada Corporation (TSX:TRP)(NYSE:TRP) | 3.84% | $55.9 billion |
| Vermilion Energy Inc. (TSX:VET)(NYSE:VET) | 6.29% | $4.93 billion |
| Source: Yahoo! Finance |
Let’s say few words about these top energy stocks, which have stable dividends and huge potential for an upside move if oil prices break out of a current range for a sustained recovery.
Shares of Canadian Natural Resources, Cenovus, and Suncor have all rallied in July between 10% and 14% until August 4, as these companies surprised analysts with a healthy second quarter, brightening the outlook of both companies.
Canadian Natural Resources remains one of the best managed companies in the oil patch. It recently acquired oil sands assets from Royal Dutch Shell, which should provide a great boost to its cash flows as oil prices recover. The company is on track to add 3,000 barrels of oil equivalent production along with an $180 million capital spending cut in 2017.
Similarly, Cenovus said it can now cover the costs of operating its existing oil sands operations if West Texas Intermediate remains in a mid-$30 range.
Suncor had a mixed quarter, but its growth plans remain on track. The company has healthy cash flows, even if oil trades at US$50 a barrel. The company has been successful in cutting its cash operating costs 41% to $27.80 per barrel in the second quarter. Suncor’s 3.12% dividend yield is also attractive after a 10% hike announced early this year.
If you want to avoid a direct exposure to oil producers, then a pipeline operator TransCanada Corporation is an attractive option. The company ships oil and gas through its pipelines and gets a fee in return. With a stable revenue model and an attractive 3.84% dividend yield, you can depend on TransCanada’s dividends for many years to come.
