Do you want dividend stocks with high yields and fast growth in your TFSA?
If so, it pays to look into Canadian energy stocks.
Canadian energy stocks sport high yields and fast dividend growth. Their stock prices have gotten beaten down thanks to the relatively weak performance of crude oil in the 2023 period. Oil prices briefly rallied this year, but WTI crude couldn’t keep up the momentum. As a result, the TSX Energy Index has fallen 11 points, or 4%, over the last 12 months.
Nevertheless, there is still a lot of value in Canadian oil stocks. These stocks delivered explosive earnings growth last year. Today, oil prices aren’t high enough to keep such growth going. In most cases, earnings are going down at Canada’s big energy companies. As a result of this, they’re now very cheap, with some of them trading at just five or six times earnings. In this article, I will explore two Canadian energy stocks offering fast-growing dividends in 2023.
Suncor Energy
Suncor Energy Inc (TSX: SU) is a great energy stock for those eager for fast-growing dividends. Earlier this month, it increased its dividend by 5% to $0.545 per quarter, on the strength of its recent earnings release, which easily beat analyst expectations. In the first quarter, Suncor Energy delivered:
- $3 billion in funds from operations, down 25%.
- $1.8 billion in adjusted operating earnings, down 33%.
- $1 billion in cash from operations, down 66%.
- $12.7 billion in revenue, down 15%.
You might be wondering why I’m talking this stock up when its earnings are going down so much. The thing is that, although Suncor’s earnings are declining, they were expected to go down even more. In the most recent quarter, the company’s adjusted earnings figure actually beat analyst estimates.
For earnings to decline at an energy company from time to time is just the nature of the beast. Oil companies sell a commodity, and commodity prices fluctuate. It is what it is. But with a valuable crude oil business and one of Canada’s biggest gas station chains (Petro-Canada), Suncor should deliver adequate results over the long term.
Cenovus Energy
Cenovus Energy Inc (TSX: CVE) is another Canadian energy stock with a lot of dividend growth potential. Like Suncor Energy, its earnings declined last quarter, thanks to falling oil prices. However, the company paid off an enormous amount of debt in the 2022 oil bull market, which should soften the blow of declining revenue in the future. Debt creates interest expenses that reduce profit. In 2022, CVE shaved off a lot of these costs, leaving it better positioned for the future.
Cenovus Energy has delivered ample dividend growth over the years. Over the last five years, its dividend has grown at a blistering pace of 19.6% per year. The company’s payout ratio is just 27%, so it can even afford more dividend hikes, despite the fact that oil prices are fairly weak this year. Few energy stocks have delivered more dividend growth than Cenovus over the last five years. This stock’s yield is not very high (2%), but what it lacks in yield it makes up for in dividend growth.
