Its been a forgettable year for companies in the energy sector. The COVID-19 pandemic resulted in an oversupply of crude oil while the price war between Saudi Arabia and Russia dragged prices lower. These factors exacerbated the sell-off in energy stocks with several companies slashing or suspending dividends altogether.
However, there are a few companies that have managed to stay the course amid the market volatility. We’ll look at three large-cap dividend stocks on the TSX that have been able to sustain dividend payouts, making them attractive bets for income investors given the correction in stock prices.
An energy infrastructure giant
When it comes to Canadian dividend stocks, it is difficult to ignore Enbridge (TSX:ENB)(NYSE:ENB). The energy infrastructure giant is trading 30% below its 52-week high, which means its forward yield is 8.2%.
Enbridge is a Dividend Aristocrat and has increased payouts at an annual rate of 11% in the 25 years. The company has a huge portfolio of oil logistics infrastructure and natural gas assets that account for 80% of EBITDA. The rest is generated from its natural gas utility business and renewable power facilities.
Enbridge claims 98% of its revenue is generated from fee-based or regulated contracts and its diversified portfolio will allow the company to create a predictable stream of cash flows. It expects to increase distributable cash flow between 5% and 7% through 2022.
Enbridge’s strong balance sheet and low payout ratio make it an extremely attractive dividend stock for Canadian investors.
Canadian Natural Resources is yielding 7.9%
Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ) is one of the biggest oil producers in Canada. It has been severely impacted by COVID-19 and reported a loss of $310 million with revenue of $2.87 billion in the June quarter. In the prior-year period, CNQ reported sales of $5.56 billion and a net profit of $2.8 billion.
Despite the ongoing weakness, the company increased its dividends by 13% in March, its 20th consecutive year of a dividend increase. CNQ stock is down 48% year to date, which means it has a forward yield of 7.9%.
CNQ claims its low-cost structure will help it navigate a low commodity price cycle. Its adjusted funds flow in Q2 stood at $415 million, while its capital expenditures stood marginally higher at $421 million.
Canadian Natural Resources ended Q2 with a cash balance of $4.1 billion and increased its term facility to $1 billion. CNQ needs U.S. crude oil benchmark to average $31 a barrel to support capital spending as well as its dividend. The crude oil prices are around US$40 right now, which makes the company a safe bet right now.
A pipeline heavyweight
Similar to Enbridge and Canadian Natural Resources, Pembina also has a strong dividend history. It has been paying a monthly dividend since 1997 and has increased payouts at an annual rate of 5% since 2011.
Pembina is a pipeline company with a strong financial profile and generates 90% of earnings from fee-based contracts. Further, 80% of these agreements are with investment-grade counterparties. The company has a conservative payout ratio, which, coupled with strong liquidity and stable cash flows, will help it sustain dividends in 2020 and beyond.
The Foolish takeaway
While dividend payments are not a guarantee, the three energy companies have shown they can survive the ongoing downturn. An investment of $5,000 in each of these companies will generate over $1,200 in annual dividend payments.
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.
The Motley Fool owns shares of and recommends Enbridge. The Motley Fool recommends PEMBINA PIPELINE CORPORATION. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.