Last year, federal government revenues and investors’ windfall from Canada’s oil patch were massive. Due to strong commodity prices in 2022, most oil & gas companies reported record output and extraordinary profits. Some dividend payers rewarded investors with higher payouts and special dividends.
Many people expected the sector’s red-hot streak since 2021 to continue. However, energy has been the most beaten-down sector in 2023. As of this writing, the year-to-date loss is nearly 9%. Still, you can accumulate dividend riches by investing in the Canadian oil patch.
Industry analysts predict modest growth this year as spending on new projects isn’t the priority. Instead, the oil players will use their cash stockpile for debt reduction, share buybacks, and more dividend payments. Depending on your risk appetite, choose from modest to high dividend yields.
Dividend earners’ choice
Enbridge (TSX: ENB) is a popular choice for dividend earners in Canada because of its utility-like business model. Also, how can you not love the pipeline stock’s lucrative yield? At $48.48 per share (-5.3% year to date), you can partake of the 7.21% dividend.
If you purchase 517 shares ($25,064.17), you’ll earn $1,807.13 in one year. Since Enbridge has raised its dividend for 27 consecutive years, expect higher payout every year and healthy returns in the long term.
Strong energy fundamentals and four core franchises will deliver steady growth for the $98.15 billion energy infrastructure company. The main growth driver, for now, is the liquids business (74%), although gas (21%) and renewables (5%) should catch up fast soon.
Enbridge acquired Tri Global Energy, a leading U.S. renewable project developer, to accelerate investments in North America’s renewable generation development.
Multi-year drilling inventory
Tourmaline Oil’s (TSX: TOU) dividend yield is modest ($1.65%), but the potential for capital gains is awesome. At $61.44 per share (-4.12% year to date), the total return in 3.01 years is 528.08%. In February 2023, the board approved a special dividend ($2 per common share) on top of the base dividend.
The $21 billion company operates in the Western Canadian Sedimentary Basin and is Canada’s largest natural gas producer. About 80% of its total production is natural gas. In 2022, cash flow from operating activities rose 65% to $4.69 billion versus 2021, while net earnings soared 121% year over year to $4.48 billion.
Tourmaline’s large reserve base and deep drilling inventory assure multiple decades of profitable development. Market analysts recommend a buy rating; their 12-month average price target is $79.93 (+30%).
Free funds flow generation
Cenovus Energy (TSX: CVE) commits to enhancing shareholder returns, beginning with a 33% dividend base increase in the second quarter of 2023. At $22.45 per share (-13.63% year to date), the dividend offer is 2.45%.
The $42.65 billion integrated energy company is the pioneer in advancing the steam-assisted gravity drainage technology in oil sands operations. Cenovus’s oil sands assets in northern Alberta have been the cornerstone of its Upstream production business for over 20 years.
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Furthermore, the natural gas and natural gas liquids assets provide short-cycle development opportunities with high-return potential. Management said it prioritizes free funds flow generation through all price cycles to increase shareholder returns via dividend growth and share repurchases.
The choice is yours to make
Enbridge is the steadiest passive-income source in the volatile energy sector. Tourmaline Oil or Cenovus Energy are excellent options for exposure to oil and natural gas producers.
