Are you looking for quality dividend stocks to buy on the dip?
If so, it pays to go shopping in the energy sector.
Energy stocks are currently down significantly from their highs set in June 2022. The S&P/TSX Capped Energy Index is down 7% for the year, and some individual energy stocks are down far more than that. With OPEC cutting output by over a million barrels a day, the current weakness in oil prices seems unlikely to last. With that in mind, here are two all-star dividend paying energy stocks that you can buy on the dip.
Suncor Energy
Suncor Energy Inc (TSX:SU) stock is down 2.6% for the year, and it may be a good buy on the dip. I’d personally like to see this stock dip a bit further before taking a position in it, but it’s certainly a better value now than it was at the start of the year.
Suncor Energy’s most recent quarter was a bit lacklustre. In it, the company’s revenue declined 10.7%, earnings declined 22%, and operating income declined 33%. Obviously, these results were not good in absolute terms. They were, however, ahead of analyst estimates, and SU stock rallied after they came out.
If oil prices can get back to $80 or higher, then SU stock will have upside. It might take some time to get there, as central banks have been busy raising interest rates, which tends to slow down economic growth. Over a five year period, though, I could definitely see it happening.
Enbridge
Enbridge Inc (TSX:ENB) is another energy stock. Its business is quite different from Suncor’s: it operates as a pipeline and natural gas utility. It transports crude oil all over North America and supplies about 75% of Ontario’s natural gas.
Enbridge’s business is much less sensitive to oil prices than Suncor’s is. The company’s revenue comes from infrastructure leases (“tariffs”) rather than oil sales, making it a bit like a landlord. Issues in the oil industry would have to get very severe for Enbridge’s revenue to take a hit. It locks its clients into long–term contracts, typically 10 years or more. If oil prices were to fall so much that ENB’s clients started going out of business, then the company could lose some revenue. Apart from that, though, Enbridge’s business isn’t especially affected by oil price fluctuations. Nevertheless, ENB stock is down slightly for the year, making it a potential buy on the dip.
Foolish takeaway
In 2022, value stocks were the name of the game, as energy and utilities outperformed the big tech stocks that had been dominating the market for years. This year, technology stocks are shining, but that just means that the buying has gotten comparatively better in value stocks. Banks, energy stocks, and other value names are currently much cheaper than technology stocks. Particularly energy stocks. It’s situations like this one that fortunes are built on. There are risks with dividend stocks and value stocks just like with growth, but in mid-2022, the buying in dividends and value is looking good.
