After a 21.9% slump from its June peak, the S&P/TSX Capped Energy Index has climbed over 11% in the last few days. But we might be looking at another slump, since Saudi Arabia recently cut oil prices by a sizeable margin to boost sales. This is expected to hit the market and cause another worldwide slump in crude prices.
The good news is that this slump might allow you to buy some of the top Canadian energy stocks at a discount.
A midstream oil and gas operator
Keyera (TSX:KEY) is one of Canada’s largest independent midstream businesses. It has a market capitalization of $6.7 billion and recently got a bump in its credit rating, which is now BBB as opposed to BBB- in 2020. The company has an extensive midstream network (and services) that covers gathering, processing, marketing, and delivering the product to the end user.
The company is also working on its ESG profile and focusing on products with a relatively minimal carbon footprint. As an investor, you will most likely be interested in Keyera’s generous dividends and a powerful 6.2% yield. The payout ratio is quite high right now, but the company is expected to sustain its dividends. It has already grown its payouts three times in the last five years.
A pipeline company
Pipeline companies like TC Energy (TSX:TRP)(NYSE:TRP) are expected to be a bit more sheltered against the market fluctuations brought on by price changes, thanks to their long-term oil transportation contracts. Still, the stocks reflect the sentiment of the market just as well as other, more exposed energy companies.
TC Energy is no exception, but thanks to its focus now heavily shifted to natural gas than oil, the company does come with a brighter future compared to more oil-heavy players in the sector. It has an impressive footprint and energy infrastructure in three countries: Canada, the U.S., and Mexico.
The 5.7% yield is quite impressive. And if you add the fact that it’s an aristocrat that has been growing its payouts for two consecutive decades, it makes TC Energy one of the top dividend stocks in the energy sector.
Another pipeline company
If you are looking for an energy stock that offers a little more consistency and reliability when it comes to capital appreciation (along with generous dividends), then Pembina Pipeline (TSX:PPL)(NYSE:PBA) might be the stock for you. The company grew its market value at a consistent pace before the pandemic, and even after it, the recovery has been relatively linear, although the value is still 26.5% down from its pre-pandemic levels.
Pembina’s dividend yield is 6.4%, making it the most generous dividend stock on this list. And even though the payout ratio is quite high at (155%), the company has paid out and even grown its dividends at the worst payout ratios. And the discount comes with a fair valuation as well.
Many investors focused on transforming their investment portfolio for a better ESG profile don’t look too kindly towards energy stocks. But even though some energy stocks might not fit well with ESG investing, many of them are moving in the right direction — i.e., taking measures to minimize their carbon footprint. These top energy stocks are worth considering from an ESG investing perspective as well.
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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends KEYERA CORP and PEMBINA PIPELINE CORPORATION.