The energy sector in Canada has an ample supply of powerful dividend payers with stellar histories and generous yields. Dozens of Canadian energy stocks maintained and even grew their payouts even through the 2014-2015 slump that rocked the sector and again during the early stages of the pandemic when demand slumped.
However, some stocks stand out from even this compelling group of dividend payers for a number of reasons, including long-term business viability, financial sustainability of the dividends, and capital preservation/appreciation potential the stock offers.
An oil-focused midstream company
Pembina Pipeline (TSX:PPL) is one of the major pipeline companies in Canada. It controls a sizable network of pipelines — 18,000 kilometres, capable of carrying a wide range of petroleum liquids, including oil sands. The conventional and oil sands pipelines are spread out over multiple Canadian regions, while the transmission pipelines extend all the way to Chicago.
Like most other pipeline businesses, Pembina benefits from the business model and the revenue stability it offers. Since a significant segment of the company’s revenues come from oil transportation contracts that are planned and executed over long terms (usually years), they are not impacted by oil price fluctuations.
Pembina also offers a juicy 6.8% yield, thanks to the 24% discount the stock is trading at. It’s also undervalued, which, considering its decent capital-appreciation potential (in a healthy market), is a bonus.
An upstream oil and gas company
Canadian Natural Resources (TSX:CNQ) is among the largest energy stocks in Canada by market cap and one of the largest energy companies in the country. Its valuation, history, and leadership position in the sector also make it one of the most compelling blue-chip stocks the energy sector in Canada has to offer.
There are several reasons to consider this energy stock for dividends, including its over two decades of consistent dividend growth, rock-solid payout ratio, and diversified portfolio of world-class assets. But it’s also worth considering for its capital preservation and, under the right circumstances, appreciation potential. It was one of the few energy companies that bounced back (almost) swiftly from the 2014-15 devastation of the sector.
A natural gas-focused midstream company
TC Energy (TSX:TRP) is another pipeline giant in Canada, and its primary selling point is its natural gas pipeline share and market share in the natural gas transmission industry. The company’s massive 93,300-kilometre pipeline network is responsible for transporting a quarter of the natural gas consumed in the North American continent.
It also transports liquids and has a power generation business, but the scale of those operations pale compared to the natural gas business. Still, it’s an important point of consideration from an operational diversification perspective.
Even though the company enjoys the same financial stability as other pipeline companies in the country (thanks to the business model), it doesn’t always reflect on the payout ratio. But it’s counteracted by the fact that the company has been growing its payouts quite steadily for over two decades.
Most importantly, the stock is currently quite brutally discounted (fallen 38% from its 2022 peak), which has pushed its yield up to an incredibly attractive level of 8.2%.
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Foolish takeaway
The three stocks are great picks for dividends, and not just in the energy sector. They have strong dividend histories, and two of them are currently offering highly attractive yields (especially as aristocrats). The dividend sustainability potential is endorsed by their finances and payout histories.
