Canadian energy stocks are incredibly cyclical. Despite this, there are a select few companies that have delivered reliable dividend growth for years (and, in some cases, decades). Fortunately, there is good reason to believe there could be more dividends to come.
While oil and gas prices have significantly dipped over the first half of 2023, the second half looks to be picking up. Oil has recently crept over US$75 per barrel. Energy demand has not roared back out of the pandemic as expected. Yet new oil and gas supply has largely stalled, which means prices should hold a solid floor from here.
If supply falters, energy prices could rise, and so could Canadian energy stocks
If the supply picture remains as it is, chances are very good that prices could rise. U.S. energy reserves are at all-time lows, and production growth is declining globally. That bodes favourably for Canadian energy.
Many Canadian energy stocks are in top financial positions. As a result, any elevation in energy price means lots of excess cash to reward shareholders. Canadian energy stocks aren’t investing in production growth. Rather, they are paying down debt, buying back stock, paying special dividends, and hiking their dividends.
If you are looking for dividend growth, two Canadian energy stocks doing all of the above are Canadian Natural Resources (TSX: CNQ) and Tourmaline Oil (TSX: TOU).
Canadian Natural: The best of the best for Canadian energy stocks
With a market cap of $84 billion, Canadian Natural Resources is Canada’s largest energy production company. Today, this stock yields an attractive 4.7%.
CNQ has one the longest histories of growing its dividend among its peers. It has increased its dividend for 23 consecutive years with a compound annual growth rate of close to 21%. CNQ’s secret to success is financial prudence, factory-like production efficiency, decades-long reserves, and a low cost of production.
This year, the company already increased its quarterly dividend by 6%. The company sits with around $11.9 billion of net debt. When it hits $10 billion, it plans to return 100% of excess cash back to shareholders. That means there is a good chance for significant share buybacks and even special dividends going into late 2023 and 2024.
Tourmaline Oil: The king of special dividends
Tourmaline Oil is another notable Canadian energy stock for dividends. Its 1.5% dividend yield may not be too exciting to dividend investors. However, this company has been a triumph when it comes to special dividends and dividend growth.
Tourmaline has no net debt, so it has already committed 100% of spare free cash will be returned to shareholders. Year to date, it has paid $3.50 per share in special dividends. That equates to a 5% yield, which is only halfway through the year.
This company has plenty going for it. As noted, it has a great balance sheet. Likewise, Tourmaline has a top management team. Its chief executive officer owns close to 5% of the company. The company is a low-cost natural gas producer with access to top-priced markets globally.
The Foolish takeaway
Leading businesses tend to be leading stocks. Pick the best even in a tough industry, and shareholders could enjoy substantial growth in passive income and capital. At times you might need to be patient, but chances are very high that dividend growth will continue to be elevated for top Canadian energy stocks.
