Energy stocks are finding favour again among investors who want reliable and growing dividends. Enbridge (TSX:ENB) and Canadian Natural Resources (TSX:CNQ) are TSX leaders in their respective segments in the energy industry and have good track records of dividend growth.
Enbridge
Enbridge is a large player in the North American energy infrastructure sector with a current market capitalization of close to $108 billion. The stock trades near $53 at the time of writing compared to a 12-month low around $49 last October and a high above $59 reached in June.
Investors who buy at the current level can still get a 6.6% dividend yield and look forward to ongoing distribution increases. The days of double-digit payout hikes are likely over for Enbridge, but annual gains of 3-5% should be on the way, supported by the $18 billion capital program and strategic acquisitions.
The board raised the payout in each of the past 28 years.
Enbridge makes money by moving oil, natural gas, and refined fuels. Changes in commodity prices should have a limited direct impact on cash flow. The more important item is fuel demand in both North America and overseas.
Despite a potential global recession, fuel use is expected to rise in the next 12-18 months. Airlines are ordering hundreds of new planes to accommodate the rebound in travel demand and commuters are slowly heading back to the office in larger numbers and for more days.
Enbridge continues to diversify its revenue stream. The legacy oil and natural gas pipeline networks remain the core asset base, but Enbridge is expanding into export facilities and boosting investments in renewable energy. In addition, the natural gas utilities provide steady and reliable cash flow.
Canadian Natural Resources
Canadian Natural Resources is Canada’s largest oil and natural production firm with a current market capitalization near $91 billion.
The stock trades around $82 at the time of writing. That’s not far off the 2022 high near $88.
A sharp rebound in the price of oil in recent weeks is largely responsible for the bounce off the March pullback. Despite the surge, investors can still get a 4.4% dividend yield.
The board raised the dividend by 6% for 2023. This is the 23rd consecutive annual dividend hike, and investors have received a compound annual growth rate of better than 20% over that timeframe. That’s an impressive track record for a business that is at the mercy of fluctuating commodity prices to determine revenue.
CNRL’s strength lies in its diversified asset base that spans the hydrocarbon spectrum. The company also owns 100% of most of its assets. This provides management with the flexibility to shift capital around quickly to take advantage of positive moves in commodity prices.
The recovery in the price of oil could continue as rising fuel demand bumps up against limited supply expansion. Investors received a bonus dividend of $1.50 per share last August. More special payouts could be on the way if oil extends its rally through the summer months.
Is one a better dividend pick?
Enbridge and CNRL pay attractive dividends that should continue to grow. Enbridge offers a higher yield today, and the stock should be less volatile when energy prices fluctuate, so I would probably make the energy infrastructure company the first choice right now for a portfolio focused on passive income.
CNRL had a big run in the past month, and more gains could be on the way, but I would probably wait for a pullback before buying the stock.
