1 Energy Stock With a 733% Return Outperforms Enbridge (TSX:ENB)

One small-cap energy stock has outperformed the sector’s top-tier dividend stock with its 733% return.

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TSX’s energy sector is still scorching hot in October 2021, gaining by as much as 60%. Enbridge (TSX:ENB)(NYSE:ENB) remains the biggest draw but not the top performer. However, you can pick several small-cap energy stocks to complement North America’s largest energy infrastructure company.

Baytex Energy (TSX:BTE)(NYSE:BTE) is having a spectacular run and has rewarded investors with a 733% return. As of October 6, 2021, the share price is $3.75 compared to $0.45 a year ago. Also, the year-to-date gain is 443%. Had you invested $6,000 on December 31, 2021, your money would be worth $40,760.87 today.

Combining a high-flyer with a top-tier dividend stock is a great option. Enbridge will produce rock-steady dividends, while Baytex provides the capital gains. We don’t know how long the rally will last, although oil prices hit US$79 a barrel recently, the highest since November 2014.

Anchor stock for everyone

Enbridge may not be as explosive as the small-cap energy stock, but it’s the anchor stock of choice anytime. The $103.48 billion company operates in the highly volatile energy industry, yet it pulls through during economic downturns because of its low-risk pipeline and utility business model.

The best-in-class infrastructure assets (four blue-chip in total) deliver stable cash flows that enable management to grow dividends every year. Enbridge’s dividend track record is 70 years and has raised its dividends for 26 consecutive calendar years. The energy stock trades at $51.01 (+32% year to date) and pays a fantastic 6.61% dividend.

You can buy and hold the stock for as long as you wish. If you’re saving for retirement or building future wealth, any investment amount will double in less than 11 years. A $20,000 investment will produce $330.50 investment income every quarter. That is how reliable Enbridge is to income investors.

Finally, the business is vital to North America as Enbridge transports 25% of the region’s crude oil requirements. Also, 20% of America’s natural gas consumption passes through the company’s pipeline network. 

Magnificent comeback

Baytex Energy is a $2.06 billion company from Calgary that acquires, develops, and produces crude oil and natural gas. The operations are in the Western Canadian Sedimentary Basin and Eagle Ford in the United States. About 62% of production comes from the home country, while 38% comes from across the border.

The magnificent comeback this year is why Baytex continues to soar in the stock market. In the first half of 2021, petroleum and natural gas sales growth versus the same period was 69%. Management reported a net income of $1 billion versus the $2.6 billion net loss in the prior year.

Because of improving commodity prices, Baytex expects to generate more than $350 million of free cash flow in 2021. Similarly, the company has increased its production guidance and targets further debt reduction this year.

Management has a five-year (2021 to 2025) business plan in place where it expects to generate a cumulative free cash flow of over $1 billion during the period. However, the amount could increase in higher pricing scenarios.

Top performer in 2021

The energy sector has been number one on the leaderboard since January 2021. It hasn’t relinquished the position to the technology sector, last year’s runaway winner. Most of the companies, including Baytex, have recovered or are recovering from their losses in 2020.

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Enbridge.

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