Dividend Investors: 3 Top Picks From 1 of Canada’s Most Defensive Industries

Should investors consider Vermilion Energy Inc. (TSX:VET)(NYSE:VET) and two other Canadian energy stocks based on their value and dividends?

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Newcomers to the TSX index have a treat ahead of them: several high-tier energy stocks are attractively valued at the moment and pay some of the best dividend yields available to Canadian investors. From a +8% yield to high growth, the following trusted tickers have an appealing spread of impressive stats and represent some of the best picks from the ever-defensive energy sector. Market variables, balance sheets, and outlook are analyzed to ascertain which stocks are the best buys.

Vermilion Energy (TSX:VET)(NYSE:VET)

One of the most intriguing TSX index energy stocks is up 4.25% in the last five days and expecting a significant annual earnings-growth rate of 115.8% over the next one to three years. More shares in Vermilion Energy have been bought by insiders than sold in the last three months, making it a hot pick for defensive dividends at the moment.

A forward annual dividend yield of 8.3% somewhat plasters over a few bothersome bits of data, though. Its expected ROE of 6.9% is a little low, for one thing. Negative past one- and five-year earnings-growth rates are also a pair of red flags for wary investors looking for a strong track record, and a fairly high debt level of 73.8% of net worth may put off investors with a low appetite for risk.

Parkland Fuel (TSX:PKI)

With a P/E of 27.9 times earnings and P/B of 2.9 times book, Parkland Fuel is priced close to its future cash flow value. Compare this valuation with that of Vermilion Energy: that stock, while technically undervalued by 17%, is currently selling at twice book, though the biggest Canadian energy stocks average at around 1.6 times book.

A dividend yield of 3.11%, paired with a 33.5% expected annual growth in earnings, makes for a solid stock. Those investors looking for a decent track record should take note of a one-year past earnings growth of 395.3%, (though even its five-year average past earnings growth of 10.8% would be the envy of some top-tier energy stocks).

TORC Oil & Gas (TSX:TOG)

One of the most interesting stocks on the TSX index, more shares in TORC Oil & Gas have been snapped up than shed by insiders in the past three months, though not by any great amount. A gain of 6.11% in the last five days coupled with a high one-year past earnings-growth rate signify a stock that is on the up.

With a below-threshold comparative debt level of 22.1% of net worth, TORC Oil & Gas is the healthiest of the dividend-paying energy stocks on this list. A significant 27.8% expected annual growth in earnings, paired with a dividend yield of 5.64%, makes for a solid buy for both capital gains and passive income investors.

The bottom line

TORC Oil & Gas is arguably the better dividend stock of the three, with its decent mix of good value, expected growth in earnings, and regular passive income. Its P/E of 29.3 times earnings seems to be par for the course for a top-tier energy stock, while its P/B of 0.7 times book signals undervaluation in terms of assets, beating both the industry and the TSX index as a whole.

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 Victoria Hetherington has no position in any of the stocks mentioned.

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