The recent market correction has triggered a pullback in Canadian energy stocks, with producers like Suncor (TSX:SU) and infrastructure players like Enbridge (TSX:ENB) all taking hits. Investors who missed the big oil and gas rally after the pandemic plunge are wondering if these stocks are now oversold and good to buy for their retirement funds.
Suncor had a rough ride over the past few years. Investors punished the stock more than its large oil sands peers due to the 55% dividend cut the company put in place in the early days of the pandemic. Suncor also came under pressure from an activist investor that called for sweeping changes at the executive level as a result of the poor performance in the share price and a string of safety issues.
The chief executive officer (CEO) left last year, and Suncor undertook a strategic review of its assets. A new CEO is now in place, and Suncor has made progress on monetizing non-core holdings, including its renewable energy portfolio and some overseas assets.
The stock is still out of favour. At the time of writing, Suncor stock trades for less than $40 per share. This is down from the 2022 high around $53 and still below the pre-pandemic price.
What about the upside?
Investors who buy now can get a 5.25% dividend yield.
Suncor has shored up the balance sheet over the past two years, and the dividend is now at a record high. Aggressive share buybacks are also in place, so investors should start to see the benefits later this year, especially if the price of oil moves back above US$80 per barrel.
Enbridge owns and operates vast oil pipeline and natural gas pipeline networks across Canada and the United States. The company moves 30% of the oil produced in the two countries and 20% of the natural gas used by American homes and businesses. In addition, Enbridge owns natural gas utilities, export terminals, and a growing renewable energy division.
Fluctuating oil and natural gas prices have limited impact on revenue and cash flow. As long as the pipelines and storage facilities are full, Enbridge makes money. Fuel demand is on the rise and expected to trend higher in the next few years. International buyers are increasingly turning to Canada and the United States for reliable supplies of oil and natural gas. Enbridge is positioned well to benefit. The company owns an oil export terminal in Texas and has a stake in the Woodfibre liquified natural gas (LNG) terminal being built in British Columbia.
Enbridge stock trades near $50 per share at the time of writing compared to $59 last June. Investors who buy now can get a solid 7% dividend yield. Enbridge raised the dividend in each of the past 28 years, so the distribution should be safe.
Is one a better bet?
Suncor likely carries more near-term risk but probably offers higher potential total returns, especially if oil bulls are correct in their prediction for much higher prices in the next couple of years. Income investors might want to make Enbridge the first choice today. I would probably split a new investment between the two stocks.