Oil is on the boil again amid supply concerns and rising demand. Besides, the ongoing Israel and Palestine conflict and further escalation could boost oil prices. So, oil prices could remain elevated in the near-to-medium term, benefiting oil-production companies. So, you can buy the following three top TSX energy stocks in this favourable environment to earn superior returns.
Canadian Natural Resources
Canadian Natural Resources (TSX:CNQ) operates a diversified portfolio of assets with a long reserve life and low decline rate. Thanks to its effective and efficient operations, the company enjoys a low WTI (West Texas Intermediate) breakeven price. With analysts projecting oil prices to remain elevated in the near-to-medium term, I expect the company’s margins to remain higher. The company is also strengthening its asset base this year with a capital investment of $5.4 billion. Supported by these investments, management hopes to increase its production, with the midpoint of the guidance representing a 5.5% increase from the previous year.
Besides, Canadian Natural Resources has reduced its debt levels from $21.3 billion at the end of 2020 to $12 billion as of June 30 while reporting solid financials. So, its interest expenses could fall. During the same period, the company has also repurchased $8.6 billion worth of shares, which could boost its EPS (earnings per share). So, I expect the independent energy producer to post strong performance in the coming quarters, increasing its stock price. Also, CNQ has raised its dividends for the previous 23 years at an annualized rate of 21%, with its forward yield currently at 4.29%. Despite these favourable factors, CNQ trades at 10.1 times analysts’ projected earnings for the next four quarters, making it an attractive buy.
Suncor Energy
Another energy stock that I am bullish on would be Suncor Energy (TSX:SU). The integrated energy company has made $2.7 billion of capital investments this year and expects to make an additional $2.7–$3.1 billion in the final two quarters. It has also recently signed an agreement to acquire TotalEnergies’ Canadian operations for $1.5 billion. The acquisition could add another 61,000 barrels per day production capacity and 675 million barrels of proved and probable reserves.
Propelled by these growth initiatives and the higher realization value, I expect Suncor Energy to post strong financials in the coming quarters. Besides, it has strengthened its balance sheet by lowering its net debt from $16.2 billion at the end of 2021 to $14.4 billion. It has also repurchased 6% and 8% of outstanding shares in 2021 and 2022, respectively. The company has further rewarded its shareholders by raising its dividends by 100% in 2021 and 24% in 2022. With a quarterly dividend of $0.52/share, its forward yield is 4.72%. SU trades at an attractive NTM (next 12 months) price-to-earnings multiple of 7.7. Considering all these factors, I believe Suncor Energy would be an excellent buy.
Enbridge
My final pick would be a Dividend Aristocrat, Enbridge (TSX:ENB), which has raised its dividends for the previous 28 years at a CAGR (compound annual growth rate) of 10%. The midstream energy company has been under pressure over the last few days amid its proposed acquisition of three natural gas utilities in the United States. Investors are worried about its rising debt levels in this higher interest environment. The correction has dragged its valuation down to attractive levels, with its NTM price-to-earnings multiple at 15.5.
Meanwhile, with these acquisitions, the company could generate 22% of its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) from gas utilities, thus reducing business risk and creating long-term value for its customers. Further, the company expects to put around $3 billion of assets into service this year, which could contribute towards its financial growth. Considering these factors and its forward yield of 8.17%, Enbridge would be a worthy energy stock to buy despite the volatility.
