2 Top Energy Stocks to Buy Right Now

These energy companies remain immune to the economic and commodity down cycles.

| More on:
energy industry

Image source: Getty Images

The steep recovery in oil and natural gas prices from the pandemic lows significantly boosted the financials of energy companies. Given the favourable operating environment, energy stocks skyrocketed and outperformed the benchmark index. Meanwhile, energy companies accelerated the pace of debt reduction and share buybacks and announced dividend hikes.  

While energy companies benefitted from the higher average price realizations and strong cash flows, the expected commodity down cycle amid fear of recession poses challenges ahead. Whether the rally in energy stocks is over or not is debatable. Meanwhile, investors can still find attractive investment opportunities in the sector that remain immune to the economic and commodity down cycles. Against this background, here are the top two energy stocks to buy now. 

TC Energy 

TC Energy (TSX:TRP) could be a reliable investment in the energy space. Its regulated and contracted assets witness high utilization and remain relatively immune to economic and commodity cycles. Further, its diversified asset base adds stability. Given the resiliency of its cash flows, TC Energy has consistently enhanced its shareholders’ returns through dividend hikes. 

Notably, this energy infrastructure company has raised its dividend at a CAGR (compound annual growth rate) of 7% in the last 22 years. Meanwhile, its growing base of regulated and contracted assets (accounting for 95% of its adjusted earnings) and a multi-billion-dollar (about $34 billion) secured growth projects augur well for future growth and dividend payments. 

TC Energy expects to grow its dividend by 3-5% annually. Meanwhile, it offers a dividend yield of 6.28%, which is attractive. 

Brookfield Renewable Partners

My next pick is a renewable energy stock. Notably, the focus on decarbonization across the globe, government support, and strong capital investments to add capacity provide a solid foundation for growth for the companies in the green energy space. Given higher adoption, renewable energy stocks will likely deliver substantial capital gains. Moreover, their contracted assets add visibility over future cash flows and support dividend growth. 

Within the renewable energy sector, investors can consider investing in Brookfield Renewable Partners (TSX:BEP.UN) stock to capitalize on the energy transition opportunities. Brookfield Renewable is a pure-play green energy company with a diversified portfolio of assets (water, solar, wind). Further, with its 23,600 megawatts of power-generating capacity and solid development pipeline, Brookfield Renewable is poised to deliver solid financials and enhance its shareholders’ returns. 

It’s worth highlighting that over 90% of its power output is contracted to creditworthy counterparties. Moreover, Brookfield benefits from its long power-purchase agreements (PPAs) that have an average remaining life of about 14 years. Also, most of its PPAs have protection against inflation, which helps it grow organically.  

The secular sector trends, stability of its cash flows, strong balance sheet, no near-term debt maturities, and very little exposure to the floating interest rates support my optimism. Meanwhile, investors are likely to benefit from its reliable dividend payouts, focus on generating an average annual shareholder return of 12-15%, and decent dividend yield of 4.49%. 

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 Sneha Nahata has no position in any of the stocks mentioned. The Motley Fool recommends Brookfield Renewable Partners. The Motley Fool has a disclosure policy.

More on Energy Stocks

Arrowings ascending on a chalkboard
Energy Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Canadian Natural Resources stock is well set up to beat the TSX as it continues to generate strong cash flows…

Read more »

energy industry
Energy Stocks

2 TSX Energy Stocks to Buy Hand Over Fist Now

These two rallying TSX energy stocks can continue delivering robust returns to investors in the long term.

Read more »

green energy
Energy Stocks

1 Magnificent TSX Dividend Stock Down 37% to Buy and Hold Forever

This dividend stock has fallen significantly from poor results, but zoom in and there are some major improvements happening.

Read more »

oil tank at night
Energy Stocks

3 Energy Stocks Already Worth Your While

Here's why blue-chip TSX energy stocks such as Enbridge should be part of your equity portfolio in 2024.

Read more »

Solar panels and windmills
Energy Stocks

1 Beaten-Down Stock That Could Be the Best Bet in the TSX

This renewable energy stock could be one of the best buys you make this year, as the company starts to…

Read more »

Dice engraved with the words buy and sell
Energy Stocks

Is Enbridge Stock a Buy, Sell, or Hold?

Here's why Enbridge (TSX:ENB) remains a top dividend stock long-term investors may want to consider, despite current risks.

Read more »

Gas pipelines
Energy Stocks

If You Had Invested $5,000 in Enbridge Stock in 2018, This Is How Much You Would Have Today

Enbridge's high dividend yield hasn't made up for its dismal total returns.

Read more »

Bad apple with good apples
Energy Stocks

Avoid at All Costs: This Stock Is Portfolio Poison

A mid-cap stock commits to return more to shareholders, but some investors remember the suspension of dividends a few years…

Read more »