2 Stocks That Are Winning as the Price of Natural Gas Surges 99%!

The natural gas boom is likely to benefit produces such as Enbridge (TSX:ENB)(NYSE:ENB).

| More on:
young woman celebrating a victory while working with mobile phone in the office

Image source: Getty Images

Supply concerns and severe weather have pushed natural gas prices up to a 13-year high! Each unit of the energy source is worth 99% more today than a year ago. That’s bad news for consumers but great news for these two stocks. 

Natural gas winner #1

Enbridge (TSX:ENB)(NYSE:ENB) has been on an impressive run in 2021, going by the 20% plus gain year-to-date. The company moves about 20% of all gas consumed in the United States. Its gas transmission and midstream pipelines cover about 30 U.S. states, five Canadian provinces, and some parts of the Gulf of Mexico.

Unsurprisingly, Enbridge offers a 6.6% dividend yield. The steady rise in natural gas and energy prices has helped the company boost this dividend at a compound annual growth rate of more than 14% over the past decade

The company’s Line 3 pipeline expansion is poised to start shipping crude in the middle of this month, providing an opportunity for the company to further strengthen its revenue base.

Enbridge’s edge

Enbridge boasts a low-risk business model diversified into liquids pipelines, natural gas distribution, and transmission infrastructure. In addition, it has long-term contracts that continue to generate significant free cash flow. The company pays 60-70% of its steady income through dividends.

While Enbridge is by no means a growth stock, it is still an exciting pick, as it is trading at a discount compared to its peers. A forward price-to-earnings ratio of 20 compared to 27 for Suncor Energy (TSX:SU)(NYSE:SU) means it is cheap. That said, Suncor shouldn’t be overlooked either. 

Natural gas winner #2

Suncor stock is up 9.6% year to date. Coupled with its 3.6% dividend yield, its total return is respectable but not mind-blowing. That could change, as investors realize Suncor has significant exposure to natural gas. Suncor Energy’s underlying subsidiary is a full-service wholesale natural gas supply, marketing, and trading business. 

Suncor’s improving prospects

The company is fresh from reporting solid second-quarter results, with funds from operations landing at $2.36 billion, up from $488 million delivered the same quarter last year. Operating earnings surged to $722 million from a $1.35 billion delivered the same quarter last year.

An uptick in oil demand leading to stabilization of prices above the $60 a barrel should allow the company to grow its cash flow for use in buying back shares and growing the dividend program, as Suncor Energy pays out about half of its cash flow as dividends. Meanwhile, the spike in natural gas should boost its prospects further. 

Despite the recent underperformance, the company still offers a decent 3.5% dividend yield much higher (and arguably more reliable) than most dividend stocks. Additionally, the stock is currently trading at a great discount after the recent pullback going by the forward price-to-earnings ratio of seven.

If you’re looking for a safe way to bet on natural gas or oil, Suncor should be on top of your 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.

Fool contributor Vishesh Raisinghani has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Enbridge.

More on Dividend Stocks

stock analysis
Dividend Stocks

Buy These TSX Dividend Shares Next Week

Are you looking for dividend stocks to add to your portfolio? Buy these picks next week!

Read more »

edit Safety First illustration
Dividend Stocks

3 of the Safest Dividend Stocks in Canada

These three dividend stocks are all high-quality companies with defensive operations, making them some of the safest investments in Canada.

Read more »

A person builds a rock tower on a beach.
Dividend Stocks

3 Stocks to Anchor Your Portfolio in a Rocky Market

Three stocks are solid anchors in any portfolio today for their outperformance in a weak market and defiance of the…

Read more »

money cash dividends
Dividend Stocks

3 Solid Dividend Stocks That Cost Less Than $30

Given their solid financials and healthy cash flows, the following under-$30 dividend stocks are a good buy in this volatile…

Read more »

grow money, wealth build
Dividend Stocks

2 High-Yield Dividend Stocks With Rock-Solid Payout Ratios

These two dividend stocks offer unbelievably high yields of more than 7% and earn more than enough free cash flow…

Read more »

Dividend Stocks

5 Steps to Making $500 in Monthly Passive Income in 2023

Generating monthly passive income isn't as hard as it sounds. Here are 5 steps to start making $500 every month.

Read more »

sad concerned deep in thought
Dividend Stocks

Worried About a Recession? Invest in This Stable Dividend Stock to Rest Easy

Stable dividend stocks bought primarily for their payouts can offer you surety of returns, even during a recession.

Read more »

A golden egg in a nest
Dividend Stocks

How to Turn $50,000 Savings Into a Generous Nest Egg in 2 Decades

Build a generous nest egg in 20 years by investing your accumulated savings in Dividend Aristocrats and holding them in…

Read more »