2 Incredibly Cheap Canadian Energy Stocks to Buy Now

Dividend-paying TSX energy stocks, such as Ovintiv, trade at cheap valuations in 2024.

| More on:
Oil pumps against sunset

Image source: Getty Images

While tech stocks have staged a remarkable comeback in the past 15 months, energy stocks are feeling the heat due to a sluggish macro environment and lower oil prices. The ongoing pullback in energy stocks allows you to identify quality stocks trading at a discount and buy the dip. Here are two incredibly cheap Canadian energy stocks to buy now.

The bull case for Ovintiv stock

Valued at $18.6 billion by market cap, Ovintiv (TSX:OVV) is an energy producer focused on developing its multi-basin portfolio of oil, natural gas, and natural gas liquids. Its principal assets include the Permian in Texas, Anadarko in Oklahoma, and Montney in British Columbia.

Despite an uncertain and challenging environment, Ovintiv beat and reset its targets twice in 2023. It ended 2023 with net earnings of $2.1 billion and an operating cash flow of $3.9 billion. It invested $2.7 billion in capital expenditures, which suggests its free cash flow stood at $1.2 billion, allowing it to return $733 million to shareholders via dividends and buybacks.

Last June, Ovintiv more than doubled its premium drilling inventory in the Permian thanks to three accretive acquisitions. These acquisitions have added 1,650 premium drilling locations to its portfolio in the last three years.

In 2023, Ovintiv reduced total debt by $426 million, strengthening its balance sheet. It continues to focus on maximizing returns on invested capital and free cash flow to enhance shareholder returns. Ovintiv expects to end 2023 with a free cash flow of $1.6 billion, an increase of $450 million year over year, assuming flat production and lower commodity prices, which should drive dividends higher.

Ovintiv pays shareholders an annual dividend of $1.20 per share, translating to a forward yield of 2.3%. These payouts have risen by 50% in the last two years. Priced at less than 10 times forward earnings, the TSX energy stock is quite cheap, given earnings are forecast to expand by 17.3% annually in the next five years.

Is Secure Energy Services stock undervalued?

Valued at $3.2 billion by market cap, Secure Energy Services (TSX:SES) is engaged in the waste management and energy infrastructure businesses in Canada and the United States. The company delivered significant shareholder value in 2023, returning $280 million to shareholders.

Its share buybacks in the last 12 months decreased the outstanding share count by 7%, allowing Secure Energy Services to improve adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) by 11% year over year.

Moreover, it executed two critical infrastructure growth projects which are backed by long-term commercial agreements, resulting in stable cash flows across business cycles.

In 2023, SES reported revenue of $1.64 billion, an increase of 7% year over year. Its adjusted EBITDA stood at $590 million, indicating a margin of 36%.  Further, net income was $195 million, or $0.66 per share, while funds flow from operations rose 18% to $474 million.

  • We just revealed five stocks as “best buys” this month … join Stock Advisor Canada to find out if Enbridge made the list!

SES pays an annual dividend of $0.40 per share, translating to a forward yield of 3.5%. These payouts have risen by 25% annually in the last seven years.

Priced at 13.8 times forward earnings, SES stock is not too expensive and trades at a discount of 11% to consensus price target estimates.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Energy Stocks

edit Businessman using calculator next to laptop
Energy Stocks

If You’d Invested $5,000 in Brookfield Renewable Partners Stock in 2023, This Is How Much You Would Have Today

Here's how a $5,000 lump-sum investment in BEP.UN would have worked out from 2023 to present.

Read more »

Energy Stocks

Here Is Why Enbridge Is a No-Brainer Dividend Stock

For investors looking for a no-brainer dividend stock worth holding for the long term, here's why Enbridge (TSX:ENB) should be…

Read more »

Money growing in soil , Business success concept.
Energy Stocks

3 Canadian Energy Stocks Set for a Wave of Rising Dividends

Canadian energy companies are rewarding shareholders as they focus on sustainable financial performance.

Read more »

Solar panels and windmills
Top TSX Stocks

1 High-Yield Dividend Stock You Can Buy and Hold Forever

There are some stocks you can buy and hold forever. Here's one top pick that won't disappoint investors anytime soon.

Read more »

Oil pumps against sunset
Energy Stocks

Is it Too Late to Buy Enbridge Stock?

Besides its juicy and sustainable dividends, Enbridge’s improving long-term growth prospects make it a reliable stock to hold for the…

Read more »

oil and gas pipeline
Energy Stocks

Why TC Energy Stock Is Down 9% in a Month

TC Energy (TSX:TRP) stock has fallen by 9% in the last month, as it continues to divest assets to strengthen…

Read more »

Group of industrial workers in a refinery - oil processing equipment and machinery
Energy Stocks

If You Like Cenovus Energy, Then You’ll Love These High-Yield Oil Stocks

Cenovus Energy is a standout performer in 2024, but two high-yield oil stocks could attract more income-focused investors.

Read more »

Man considering whether to sell or buy
Energy Stocks

Is Enbridge Stock a Buy, Sell, or Hold?

Enbridge now offers a dividend yield near 8%.

Read more »