2 Cheap Energy Stocks With Great Dividends to Buy in September

Top energy stocks look undervalued right now for savvy dividend investors.

| More on:
oil tank at night

Image source: Getty Images

The overall market is trading near record highs, but Canadian energy stocks appear to be oversold right now and could deliver huge returns for dividend investors in 2022.

Canadian Natural Resources

Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ) is benefitting from the rally in energy prices. The company owns a broad range of production assets, including oil sands, conventional heavy oil, light oil, offshore oil, and natural gas.

CNRL is somewhat unique among the big Canadian oil producers in that it tends to own its facilities outright rather than partnering with other companies to spread out the costs and risks. The benefit of the strategy is the flexibility to quickly shift capital to high-return opportunities as market prices change.

CNRL generates significant revenue in the current market conditions. The company reported Q2 2021 cash flow from operating activities of $2.94 billion. Adjusted net earnings came in at $1.48 billion.

CNRL is not shy when it comes to doing strategic deals to boost long-term growth. The company made three acquisitions in the first half of 2021. Two occurred on the natural gas side of the business with the addition of assets in British Columbia. Natural gas has a bright future, and CNRL’s Canadian portfolio is positioned well to benefit from strong demand and higher prices.

Management is targeting annual free cash flow of $7.2-7.7 billion for 2021. The board raised the dividend by 11% for the year and a similar, or even higher, increase should be on the way in 2022.

The stock trades near $42 per share at the time of writing. That’s down from the 2021 high around $46. Investors who buy now can pick up a 4.5% dividend yield and wait for the market to realize how much profit this company has the potential to generate in the next few years.

TC Energy

TC Energy (TSX:TRP)(NYSE:TRP) doesn’t produce oil or gas. It simply moves the products from the producers to their customers. The energy infrastructure sector is under some pressure due to growth concerns. Government and political opposition to large new pipeline projects make it hard for TC Energy and its peers to grow organically. That being said, TC Energy has a $21 billion capital program underway that should drive cash flow growth to support annual dividend increases of at least 5% for the next few years.

TC Energy has a market capitalization of more than $55 billion. This gives it the flexibility to make acquisitions to drive growth in addition to the internal projects. Existing pipelines should be worth more in the current environment, and TC Energy has an extensive and strategic natural gas pipeline networks across Canada, the United States, and Mexico.

The stock looks cheap at the current share price of $60. It was $75 before the pandemic. Investors who buy now can pick up a 5.8% dividend yield.

The bottom line

CNRL and TC Energy pay above-average dividends that should continue to grow at an attractive pace. The stocks appear undervalued right now in an otherwise expensive market. If you have some cash to put to work, CNRL and TC Energy deserve to be on your dividend buy list.

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 has no position in any of the stocks mentioned. Fool contributor Andrew Walker owns shares of TC Energy and Canadian Natural Resources.

More on Dividend Stocks

A bull outlined against a field
Dividend Stocks

3 Cheap Stocks I’d Buy Before the Bull Market Arrives

Undervalued TSX stocks such as Savaria and Well Health can help investors generate market-beating gains when markets recover.

Read more »

Increasing yield
Dividend Stocks

5 Canadian Dividend Stocks With Yields of 4% or More

If you want dividends that yield over 4%, you don't have to look far. Here are five large-cap Canadian stocks…

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

3 Blue-Chip Dividend Stocks I’d Buy Over and Over

These three dividend stocks are some of the best stocks to buy right now to create strong income not just…

Read more »

calculate and analyze stock
Dividend Stocks

TFSA: Invest $20,000 and Get $867/Year Without Lifting a Finger

Compound passive income by investing tax-free in your TFSA. Check out this mini-portfolio that could turn $20K into $867/year in…

Read more »

retirees and finances
Dividend Stocks

How to Create a Million-Dollar TFSA in Two Decades

Your TFSA could create riches you didn't know were possible, but only if you commit again and again to your…

Read more »

A plant grows from coins.
Dividend Stocks

TFSA Top Stocks: 2 Cheap Dividend-Payers to Buy Before January Ends

TFSA investors can appreciate dividend-paying stocks like Barrick Gold at these modest valuations.

Read more »

analyze data
Dividend Stocks

3 Top Small-Cap Dividend Stocks to Buy in January 2023

Given their high dividend yields and attractive valuations, the following three small-cap stocks would be excellent buys.

Read more »

exchange-traded funds
Dividend Stocks

2 Ways to Score a Richer Monthly TFSA Payout

These two Vanguard ETFs pay high yields and are steady-paying holdings in a TFSA.

Read more »