Cenovus Energy Inc. (TSX: CVE) has become an example of excellence in the Canadian oil patch. I must say, investors were not as smitten just a few years ago. But this oil stock has more than doubled (+122%) in the last five years and offers a respectable 2.2% yield.
Here are two even better high-yield oil stocks to seriously consider.
Canadian Natural Resources
Like Cenovus Energy, Canadian Natural Resources Ltd. (TSX: CNQ) also has a top-tier asset base and operations. But Canadian Natural has the added benefit of a 4.23% dividend yield.
Oil prices have staged somewhat of a comeback since late last year, and they’re hovering around US$80 right now. This is almost 20% higher than December 2023 lows. Not surprisingly, Canadian Natural has responded positively to this, and CNQ is now trading at all-time highs.
But what’s to love about Canadian Natural? Well, a lot of things. Most importantly, its assets. They consist of a diversified portfolio of high-quality natural gas, crude oil, and upgrading assets. Importantly, these assets are long life assets, and as such, the company’s reserves are expected to last 32 years. This ensures reliable and predictable cash flow generation from CNQ. It’s clear that this oil company will stand the test of time.
The company’s latest quarter, Q4 2023, demonstrated all of these characteristics and more. Free cash flow came in at approximately $2.5 billion after dividend payments and capital expenditures. This cash continues to be used to pay down debt, and the company has now reached its $10 billion debt target, one quarter earlier than anticipated. This is good news for shareholders, as 100% of free cash flow will now be allocated to shareholder returns through dividends and buybacks.
Suncor Energy: A high-yield oil stock with plenty of upside
Being the underdog comes with some fringe benefits. The most important being that the underdog stock does not reflect much in the way of positive expectations. In fact, it usually reflects a lot of negativity that is often not warranted. This is what I see in Suncor Energy (TSX: SU).
Suncor has had a rough time in the last five years. Plagued by safety and operational issues, the stock has pretty much remained flat over this time period despite rising oil prices. But things are changing, in my view. Suncor’s stock price has rallied 8.6% so far this year, and the new CEO is shaking things up.
This is reflected in Suncor’s recent financial performance. The company has beat expectations in the last year, with the latest quarter’s EPS (Q4/23) coming in at $1.26, a full $0.19 above consensus expectations. Estimates are on the way up, and with this revaluing of the stock, we should see the stock outperform.
Suncor continues to be undervalued, trading at a mere 8 times earnings and 1.6 times book value. Its return on equity remains high, at over 20%, and it remains Canada’s top integrated energy company. This means that Suncor has both upstream (exploration and production) and downstream (refining) operations. This gives the company a more stable and steady profile over time, as these two businesses often complement each other.
Suncor is currently yielding a very generous 4.45%, more than double that of Cenovus Energy.
