With interest rates still being so low, investors have come to rely on dividend stocks to provide them with their retirement income. Consistent dividend increases are a great way to ensure a healthy retirement income for investors now and in the future.
Dividend stocks such as Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ) have done this for shareholders, and with another 12% dividend increase this quarter, CNQ stock’s dividend yield now stands at 4.2%. The dividend is safe and stable, with CNQ’s stable operations underpinning its strong and growing cash flow and its healthy and flexible balance sheet.
In its just-reported fourth quarter 2018, CNQ generated $1.2 billion in cash flow ($1.02 per share), despite the Canadian oil differential widening dramatically during the quarter. Costs continued to fall, and the company continues to return cash to shareholders as a reflection of management’s confidence in its future. This is a testament to the company’s resiliency and quality.
So, despite recent oil price weakness and the Canadian oil industry’s troubles, Canadian Natural is still on a long and consistent road of shareholder value creation, with dividend increases and stock price outperformance being the norms.
Freehold Royalties (TSX:FRU) is another energy stock that has given investors a reliable dividend that is backed by soaring cash flows and a strong balance sheet.
In the latest quarter, operating cash flow increased 27% versus last year and 9% versus last quarter. Freehold stock currently has a dividend yield of 7.15%, and this is a dividend that is safe and well-covered.
Freehold’s payout ratio is enviable, coming in line with the company’s targeted 60-80% range. The company’s balance sheet is also enviable, with a net-debt-to-cash flow ratio of 0.6 times.
With a highly diversified list of quality assets in a royalty model, Freehold is a less-risky way to bet on the oil and gas market and to benefit from buying in at cyclical lows.
Freehold Royalties generates free cash flow per share of approximately $0.70 at $50 oil and is well positioned to continue to create real value for shareholders. To get a sense of the oil price leverage that Freehold has, a change in the oil price from $50 to $60 increases the company’s cash flow by more than 30%.
For investors that want access to a growing and reliable dividend stream to anchor their retirement income, these two energy stocks are a good option, as they have clear histories of value creation and lower-risk business models.
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Fool contributor Karen Thomas owns shares of Canadian Natural Resources and CDN NATURAL RES. Freehold Royalties is a recommendation of Dividend Investor Canada.