The energy sector makes up a large portion of the Canadian stock market. Based on market value, energy stocks currently account for slightly more than 19% of the S&P/TSX Composite Index. While a rally in commodity prices has helped Canadian oil and gas producers expand their profit margins in the last couple of years, their attractive dividends make them even more attractive for long-term investors.
In this article, I’ll talk about two of the best Canadian energy stocks with dividends you can consider adding to your TFSA (Tax-Free Savings Account) right now to expect healthy tax-free returns on investments.
Source: Getty Images
Parex Resources stock
Parex Resources (TSX: PXT) is the first energy stock you can consider buying right now. This Canadian oil producer currently has a market cap of $2.8 billion, as its stock trades at $26.25 per share with nearly 23% year-to-date gains. At this market price, the energy firm offers an attractive 5.7% annualized dividend yield, which can become a reliable source of passive income for TFSA investors.
The ongoing strength in Parex’s financial growth trends could be understood by the fact that its revenue in five years between 2017 and 2022 more than doubled to US$1.3 billion. During the same five-year period, its adjusted earnings jumped nearly 300% to US$3.95 per share as commodity prices helped it improve profitability.
After posting a strong 11% year-over-year increase in its average annual oil and natural gas production, Parex Resources expects its production to improve further in 2023. Despite these efforts to grow production, the company continues to maintain a debt-free balance sheet and aims to return 100% of its robust free funds flow to shareholders, making it the top Canadian energy stock to buy today.
Imperial Oil stock
Imperial Oil (TSX: IMO) is another Canadian energy stock that could be a great addition to your TFSA right now. This Calgary headquartered company currently has a market cap of $42.6 billion, as its stock trades at $72.86 per share with about 11% year-to-date gains. At the current market price, IMO stock has a yearly dividend yield of 2.4%. While you may not find this dividend yield very impressive at first, its dividend per share has grown by a solid 132% in the last five years, making this energy stock really attractive.
As the global demand for energy products continued to recover last year with strong commodity prices, Imperial Oil’s annual revenue rose 59% year over year to $59.7 billion. More importantly, its adjusted earnings in 2022 surged 205% from a year ago to $11.12 per share, exceeding analysts’ estimates. As a result, the company’s adjusted net profit margin expanded significantly to 12% last year from just 6.9% in 2021.
Notably, this Canadian energy stock has rallied about 330% in the last three years. Besides its improving operational performance with record upstream production and strong downstream utilization and product sales, expectations of Imperial’s further profit margin expansion in the ongoing year due mainly to rising oil prices could help its stock soar.
