1 Top TSX Energy Stocks for Summer 2022

TSX energy stocks have tanked recently, but they could enjoy a nice summer rally. Here’s one top stock I’m eyeing to buy on the dip.

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As summer starts to heat up, TSX energy stocks have drastically cooled off. The S&P/TSX Capped Energy Index is down over 17% since the start of June. That is a drastic shift considering TSX energy stocks have vastly outperformed almost all sectors in 2022.

The market is concerned about a recession. Consequently, investors are starting to predict that high oil prices will eventually force a decline in overall energy demand. While this could occur, there are still reasons to be optimistic in the sector.

Plenty of reasons to keep liking TSX energy stocks this summer

Firstly, while oil is down, it is still near multi-year highs. Oil trades for around US$110 per barrel, which is still significantly elevated over the past multi-year average.

Secondly, there are no actual indications that energy demand is declining. While some demand may subside due to a recession, many analysts believe demand will continue to grow in 2022 and 2023.

Thirdly, TSX energy stocks are in the best financial and operational health in years. Debt is quickly dropping, operations are maximized for efficiency, and almost all energy stocks are yielding tons of cash.

In just a few quarters, TSX energy stocks will start returning significant cash returns to shareholders. If oil prices can remain elevated even just above US$70 per barrel, energy investors should still enjoy attractive cash returns.

The recent pullback is creating a very attractive opportunity for long-term investors. One top TSX energy stock that you can’t ignore after the recent decline is Tourmaline Oil (TSX:TOU).

Tourmaline Oil: Canada’s largest natural gas producer

It sits among some of the best energy businesses in Canada. Producing over 500,000 barrels of oil equivalent in natural gas, Tourmaline is Canada’s largest natural gas producer.

It has exposure to some of the most prolific gas fields in Canada. Likewise, it has the infrastructure and midstream assets that support very efficient production, transportation, and delivery of natural gas.

Consequently, it is one of the lowest-cost operators among peers. This has enabled it to generate significant amounts of cash. Today, it has a negative net debt position. That means it has ample financial flexibility and the freedom to significantly reward shareholders today.

Tons of dividends and more to come

It increased its base dividend three times in 2021. Likewise, it paid a special $0.75 dividend per share in October last year. In 2022, it has already increased its base dividend twice and it has paid two special dividends worth $1.25 and $1.50 per share, respectively. This company is gushing cash to shareholders and further special dividends are likely.

A top TSX energy stock at a bargain

Tourmaline stock is down by around $15 per share or 19% over the past few weeks. The stock only trades for 6.7 times free cash flow and 6.5 times earnings. If you add up all the dividends it has paid for the last 12 months, it is yielding close to 7% today. For one of Canada’s best energy businesses, this TSX energy stock looks like an attractive bargain today.

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 Robin Brown has positions in TOURMALINE OIL CORP. The Motley Fool has no position in any of the stocks mentioned.

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