TSX Energy Index Down 6.6%: How to Take Advantage of the Sell-Off

Investors can focus on generating passive income from three high-yield energy stocks while waiting for oil demand and prices to rebound.

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Energy stocks are running out of gas in 2023, as evidenced by the 6.6% year-to-date loss of the S&P/TSX Composite Energy Index. Last year’s top-performing sector is on the sidelines as the broader market rallies. However, the pullback isn’t entirely a setback for investors.

You can take advantage of the situation by focusing instead on creating passive income streams from high-yield energy stocks. Birchcliff Energy (TSX:BIR), a 2022 TSX 30 winner (rank number 13), is down 16.4% year to date but pays a mouth-watering 10.26% dividend.

Cardinal Energy (TSX:CJ) and Gibson Energy (TSX:GEI) also compensate for their losses and current underperformance with fat dividends. Edward Moya, a senior market analyst with The Americas OANDA, believes the oil market can quickly swing back when interest rate hikes end.

Top growth stock

Birchcliff was proud of its cash flow metrics in 2022, resulting in a record year for the $2 billion intermediate oil and gas company. The cash flow from operations, adjusted funds flow, and free funds flow increased 84.8%, 76.7%, and 90.5% to $925.2 million, $953.6 million, and $589 million, respectively, versus 2021.

Annual net income to common shareholders jumped 111% year over year to $653.7 million, a new company record. Jeff Tonken, Birchcliff’s CEO, said management is committed to generating free funds flow in 2023 and can flexibly adjust depending on commodity prices. At $7.70 per share, BIR’s total return in three years is 1,293.7%.

Monthly dividends

Cardinal Energy is among the few TSX companies that pay monthly dividends. At $7.10 per share, investors are down 5.34% year to date but enjoy a juicy 10.06% dividend. Like Birchcliff, this energy stock is a TSX30 winner in 2022, placing 23rd among the top 30 growth stocks.

The $1.1 billion oil and natural gas company boasts a successful 2022. Moreover, management promises to accomplish three priorities in 2023: reduce business risk, improve sustainability, and provide returns to shareholders. Besides the regular dividends (20% hike in 2022), it will declare special dividends when appropriate.

In 2022, cash flow from operating activities and adjusted funds flow soared 170% and 174% year over year to $337.2 million and $362.7 million, respectively. The total revenue (petroleum and natural gas) and earnings increased 66% and 6% to $737.6 million and $302.7 million, respectively, versus 2021.

Solid business performance

Steve Spaulding, President and CEO of Gibson Energy, describes 2022 as a strong year, as shown in the financial and operating results. The $3.1 billion liquids infrastructure company has nearly 14 million barrels of storage capacity and more than 500 kilometres of crude pipelines.

In 2022, net income and cash flow from operating activities climbed 53.9% and 176% to $63.9 million and $598.3 million, respectively, versus 2021.  At $21.80 per share (-7.78% year to date), prospective investors can partake in the 7.22% dividend.

Spaulding said the solid business performance allowed the company to purchase 4% of Gibson’s outstanding shares. After Q4 2022, the Board approved a 5% increase in the quarterly dividend.

Good entry points

The depressed prices of Birchcliff, Cardinal, and Gibson are good entry points. You can earn over-the-top dividends while waiting for these energy stocks to regain momentum. Also, the price appreciation could be huge when oil demand and prices rebound.

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 has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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