Investors are benefitting from the incredible comeback of oil and gas companies in 2021 and this year. In Canada, many oil producers clawed their way back from negative cash positions and forgettable stock performances due to the oil slump two years ago.
Today, with the war in Ukraine, tight oil markets, and supply constraints driving crude prices higher, profits are soaring. The energy sector’s dominance last year continues in 2022.
Despite the heightened volatility, the sector is up 32.91% year to date. Consumer staples (+4.14%) and utilities (+3.70%) are the far distant second and third, respectively, to red-hot energy stocks. Also, six of the 11 primary sectors are in negative territory.
With bumper cash flows in 2022, dividend increases by oil stocks are common these days. However, some industry players are adding a cherry on top of the cake. Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ) and Tourmaline Oil (TSX:TOU) are rewarding investors with “special” dividends.
The $3.5 billion profit reported by Canadian Natural Resources for the second quarter (Q2) 2022 represents a 125% increase from Q2 2022. Market analysts said it was an earnings surprise of 22.60% compared to 16.49% in the same quarter last year. Furthermore, the $77.61 billion oil and gas producer has surpassed consensus earnings per share (EPS) four times in the last four quarters.
For the top line, revenue reached $8.99 billion, or a 69% year-over-year growth. Performance-wise, the energy stock is up 28.32% year to date. Also, at $67.24 per share, the trailing one-year price return is 28.32%. Its chief financial officer Mark Stainthorpe said, “Strong execution across the company’s operations year-to-date has resulted in substantial free cash flow generation.”
Cash flow from operations soared 103% to $5.9 billion from a year ago due to the higher average price of West Texas crude of US$108 per barrel. Stainthorpe added, “As a result, our financial position continues to strengthen, allowing for incremental returns to shareholders.”
CNQ currently pays an attractive 4.48% dividend, but management made it sweeter for investors with the payment of a special dividend ($1.50 per share) on August 31, 2022, to shareholders of record as of August 23, 2022. Investors can expect higher dividends, as the company promised to allocate additional free cash flow once it achieves a net debt base level of $8 billion.
Record cash flows
Tourmaline Oil’s cash flow in Q2 2022 reached a record $1.35 billion or 137% higher than Q2 2021. Its $1.1 billion free cash flow (FCF) was also a record, and it led to the declaration of another special dividend — the third for 2022. The $2 per share payout on August 12, 2022, is double a full year’s worth of TOU regular dividend payments.
In the first half of 2022, net earnings grew 62% to $1.08 billion versus the same period in 2021. Its cash flow jumped 103% year over year to $2.42 billion. Because of the favourable pricing environment and robust cash flows, management plans to return at least 60% of FCF to shareholders.
If you invest today, this energy stock trades at $72.71 (+93.60 year to date) and pays a modest 1.19%. Had you invested $20,000 on year-end 2021, your capital gain today would be $18,716.72.
Investors who stuck with CNQ and TOU since 2020 didn’t regret their decisions. Both stocks should be in shopping lists in Q3 2022.