If you want some value, income, and capital upside in your TFSA (Tax-Free Savings Account), Canadian energy stocks are starting to look attractive. The Canadian energy patch has been transforming in recent years.
Rather than focusing on growing energy production, many Canadian energy companies are focused on bolstering balance sheets, becoming more efficient, and creating enduring streams of cash flow to return to shareholders.
Given geopolitical and supply risks, oil and gas prices could remain elevated for some time. The higher the price of oil and gas, the more free cash flow these companies can generate.
These stocks can be a decent hedge against the current stock market weakness. If you are looking for energy stocks that have fast-growing dividends, here are three picks today.
Two GOATs of Canadian energy stocks
Tourmaline Oil (TSX: TOU) and Canadian Natural Resources (TSX: CNQ) are seen as the GOATs (greatest of all time) of Canadian large cap energy stocks.
Tourmaline is the largest natural gas producer in Canada. It just got significantly larger after it announced its takeover of Deep Basin gas producer, Bonavista Energy.
Tourmaline already has a significant land footprint in that play. The acquisition is expected to be very accretive as there are drilling, infrastructure and marketing synergies from combining the two entities.
After the deal, Tourmaline announced a 7.7% increase to its base dividend. It also announced its third special dividend of $1 per share for 2023. That is a combined total of $5.50 per share of special dividends this year.
Tourmaline has no net debt, so it has committed to delivering most of its excess cash back to shareholders. With gas prices rising, there is certainly more base dividend growth and special dividends expected to come. Combining its 2023 dividends to-date, this stock yields over 9% today.
Canadian Natural is just one of the best energy stocks in Canada. The company has 30-plus years of energy reserves that require only incremental expense to produce.
With oil prices over US$85 per barrel, the company can generate a lot of cash that it can use to pay down debt, buy back stock, increase its base dividend and even pay special dividends.
This energy stock has a 23-year history of growing its annual dividend by over 20% on average. Last year, its base dividend grew 20%. It yields 4% today, but your yield on cost will rise if it continues its strong dividend growth trajectory.
A big, growing dividend from this stock
If you are looking for smaller energy stocks with dividend upside, you might want to look at Whitecap Resources (TSX: WCP).
This energy stock yields 6.5% today! Last month, it just announced a 26% increase to its monthly dividend. That is after growing its monthly dividend by 63% last year.
Currently, the company can sustain its attractive dividend all the way down to US$50 per barrel. After recently hitting debt targets, it has committed 75% of its excess cash to be returned to shareholders in the form of share buybacks and dividends.
The company has a target to grow production by around 5% per year, so investors also get some growth from here.
Some other energy stocks for growing TFSA income
Some other Canadian energy stocks to consider for dividend-growth include Cenovus Energy (it is nearing its long-term net debt targets and could return 100% of cash to shareholders in 2024) and Tamarack Valley Energy (it grew its dividend 50% last year, has high return assets, fast debt reduction, and promises to return 25% of cash to shareholders in 2024).
