When it comes to investing and building a diversified portfolio according to your financial goals and risk tolerance, energy stocks play an important role. Not only are energy companies and the industry itself essential to the economy, but there are plenty of different energy stocks to consider, creating opportunities for all investors to find an ideal investment to buy.
For example, there are plenty of energy stocks that are considerably risky and offer massive growth potential when energy prices are rising but can sell off rapidly when oil and gas prices are declining.
Income investors also have tonnes of stocks to consider, whether you want a safer utility business or midstream energy company, or even a business that constantly collects royalties and returns the majority of its cash flow to investors.
So, if you’re looking for top energy stocks to add to your portfolio today, here are two of the best to buy hand over fist in April.
A high-quality midstream stock offering a dividend yield of 4%
If you’re an income investor who’s looking for an attractive yield in addition to long-term capital gains potential, AltaGas (TSX: ALA) is one of the best energy stocks to buy in April.
AltaGas owns a natural gas utility business and midstream energy operations, making it slightly higher risk than a typical utility stock but also offering higher growth potential. This trade-off makes it ideal for long-term investors with a medium risk tolerance.
Not only are utility businesses some of the most defensive companies you can buy, but AltaGas’ midstream operations are also incredibly important to the energy industry, a key reason why the stock is so reliable.
By providing energy producers in Western Canada with more access to offshore markets off the west coast and creating more demand for Canadian energy, AltaGas continues to have impressive growth potential.
Plus, in 2024, according to its own guidance, AltaGas is expected to generate normalized earnings per share (EPS) of $2.05 to $2.25. That means even if AltaGas only hits the bottom of that range, it still would only be trading at a forward price-to-earnings ratio of less than 15 times, well below its 10-year average of 21.2 times.
Not to mention, with AltaGas paying just $1.19 in dividends per share annually, nowhere near the more than $2 in EPS it’s expected to earn this year, its 4% yield looks incredibly safe.
So if you’re looking for top Canadian energy stocks to buy now that you can hold for years, AltaGas is certainly one you’ll want to consider.
One of the best energy stocks to buy and hold long term
In addition to AltaGas, another high-quality energy stock to buy now is Freehold Royalties (TSX: FRU), especially for dividend investors.
Freehold is an excellent stock to buy and hold thanks to its lower-risk business model compared to traditional energy producers and its track record of stable production.
Freehold earns a royalty on all the energy that other companies produce on the land it owns. Therefore, it has to spend much less on capex than typical energy producers. Furthermore, with Freehold owning land both in Canada and the U.S., its portfolio diversification has been proven to reduce production volatility.
Looking forward, according to Freehold’s guidance for 2024, it expects that production will grow roughly 3% year over year. Although that isn’t significant growth, it continues to be stable. That’s crucial because, in addition to organic growth, Freehold can also acquire more land to expand its production. In fact, over the last few years, it has done precisely that.
It’s also worth noting that right now, Freehold has a payout ratio of roughly 65% of its free cash flow. That means that not only is the dividend safe, but Freehold continues to build its cash position, putting it in an enviable position to continue making acquisitions and ultimately growing its portfolio.
So not only does the stock offer an impressive dividend yield of roughly 7.4%, but over the long haul, Freehold should continue to expand operations and grow shareholder value.
Therefore, if you’re looking for high-quality energy stocks to buy and hold that can both return you cash and offer attractive capital gains potential, Freehold is certainly one of the best on the TSX.
