Want Higher Returns in 2021? Buy Top 2 Oil Sands Producers

The increased investments in oil sands producers by the top five pension funds in Canada is a pleasant development. It validates that Canadian Natural Resources Stock and Imperial Oil are noteworthy choices if you want higher returns in 2021.

| More on:

The TSX’s energy sector is on a roll in 2021, as prices and demand for crude continue to trend higher. A big lift is a report that showed Canada’s top five pension funds increased their investments in oil sands companies in Q1 2021. Their cumulative investments rose to US$2.1 billion.

Two of the beneficiaries are Canadian Natural Resources (TSX: CNQ)(NYSE: CNQ) and Imperial Oil (TSX: IMO)(NYSE:IMO). You can take new positions or add them to your existing investment portfolios. These energy stocks are well positioned to deliver higher returns with generous support from pension fund managers.

Hands-down choice

Canadian Natural Resources is a hands-down choice, because of its 21 consecutive years of dividend increase record. The $54.74 billion company operates in mature and low-risk basins and owns vast infrastructure assets. Its oil sands assets are among North America’s best on top of the right mix (oil sands, natural gas, light crude oil, and heavy crude oil).

The company also engages in transporting heavy crude oil to international markets through its midstream assets — crude oil pipeline systems and cogeneration plants. In Q1 2021 (quarter ended March 31, 2021), the company reported $1.37 billion net income versus the $1.28 billion net loss in Q1 2020.

Moreover, CNR achieved a record quarterly production of approximately 1,246 MBOE/d and record quarterly liquids production of over 979,000 bbl/d. According to its president and CEO Tim Mackay, expect CNR to generate significant cash flow in 2021 due to the improving commodity pricing and top-tier execution of its capital program.

CNR is a part of the recently formed alliance of oil sands producers. The group will work together to achieve net-zero greenhouse gas (GHG) emissions from oil sands operations by 2050.

The energy stock outperforms in the stock market year to date (+52.86%). At $46.20 per share, the dividend offer is 4.13%. The trailing one-year price return is 93.39%, and market analysts forecast a potential climb to $61 (+32%) in the next 12 months.

Turnaround is here

Imperial Oil is another top performer this year with its 74.99% year-to-date gain. The energy stock trades at $34.21 per share and pays a decent 2.15% dividend. Like CNR, this $25.15 billion oil sands producer is a reliable income provider. Furthermore, Imperial Oil is a dividend king for paying constant dividends since the 1880s.

Today, Imperial Oil is a subsidiary of American oil giant Exxon Mobil. It also belongs to the Oil Sands Pathways to Net Zero alliance with Canadian Natural Resources, Suncor Energy, Cenovus Energy, and MEG Energy. The group operates nearly 90% of oil sands production in Canada.

Imperial Oil’s turnaround is at hand, given the Q1 2020 (quarter ended March 31, 2021) financial results. The company reported a net income of $392 million versus the $188 million net loss in Q1 2020. Meanwhile, the top line grew by $1.1 billion compared to a year ago.

A new development is the plan of Exxon Mobil to form ExxonMobil Low Carbon Solutions. The company will commercialize technologies to include Carbon Capture, Usage, and Storage. Imperial Oil will have access to Exxon’s expertise.

Easier decision

The decision of the largest pension fund managers to increase investments in oil sands producers narrows down the investment choices. It gives you the confidence to pick up CNQ and IMO if you know that the Canada Pension Plan Investment Board is also an investor.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Dividend Stocks

arrows hit bullseye on target
Dividend Stocks

Buy the Dip: This Dividend Giant Might Be Oversold

This company has increased its dividend in each of the past 26 years.

Read more »

Dividend Stocks

Why This Unglamorous Stock Has Paid Investors for Decades

Canada’s first Dividend Knight that has paid investors for decades is anything but unglamorous.

Read more »

doctor uses telehealth
Dividend Stocks

Vital Infrastructure Is a Savvy TFSA Stock Paying 7% and the Price is Right

Vital Infrastructure Property is a defensive TFSA stock that gives investors high-yield income and predictable returns.

Read more »

ETFs can contain investments such as stocks
Dividend Stocks

No Time for Stock Research? This 1 ETF Does the Work for You

The iShares S&P/TSX Capped Composite Index Fund (TSX:XIC) eliminates the need for stock picking.

Read more »

woman holding steering wheel is nervous about the future
Dividend Stocks

Does Retirement Feel Far Away? These TSX Dividend Stocks Can Speed Things Up

These stocks have made some long-term investors quite rich.

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How Much You Really Need in a TFSA to Make $500 a Month

It takes quite a bit of money to get $500 per month in a TFSA if you invest in index…

Read more »

up arrow on wooden blocks
Dividend Stocks

2 Great Canadian Dividend Stocks That Just Raised Their Payouts Again

These companies have delivered annual dividend growth for decades.

Read more »

a man relaxes with his feet on a pile of books
Dividend Stocks

TFSA Passive Income: 3 Incredible Stocks That Earn $2,148/Year

These Canadian stocks have a solid history of dividend distribution and are likely to sustain their payouts in the years…

Read more »