3 Canadian Energy Stocks Set for a Wave of Rising Dividends

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

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There has been a major shift in the Canadian energy sector over the past five years.

Rather than focus on aggressive production growth, most energy companies have shifted their focus to sustainably managing their balance sheets and return most of their excess capital back to shareholders.

Energy investors can now expect a wave of tangible returns (base dividend growth, special dividends, and share buybacks) in the coming years. If you are looking to participate, here are three top Canadian energy stocks to look at right now.

Canadian Natural: The best of the best energy stocks

Canadian Natural Resources (TSX:CNQ) is not the cheapest energy stock by any means. But the fact that its stock is up 21% in 2024 and 154% in the past five years speaks to the quality of this business.

Not only is Canadian Natural the largest oil producer in Canada, it is also one of the best. What other energy stock has compounded its dividend by a 21% compounded annual growth rate (CAGR) for 20-plus years.

Canadian Natural stock has it all for investors: 70 years of potential energy reserves, a strong operational track record, ultra low-cost energy, and an executive team highly aligned with shareholders. It also has a great balance sheet. The company just hit its $10 billion debt target.

The energy producer is now returning 100% of its spare cash back to shareholders in growing dividends and share buybacks. CNQ stock has a history of paying special dividends, so that is certainly an option given that oil prices have been elevated in the past few months.

Tourmaline: Ready for a turnaround in natural gas prices

Tourmaline Oil (TSX:TOU) is another high-end Canadian energy stock. It is Canada’s largest natural gas producer. Natural gas is a bit more volatile than oil, so Tourmaline’s stock tends to be a bit more up and down than CNQ.

Yet, Tourmaline has many similar characteristics. It has a large-scale operation that allows it to be one of the lowest cost producers in North America. It has access to a diverse mix of markets, so it tends to fetch the best price. Lastly, Tourmaline has an excellent balance sheet and a very aligned management team.

The natural gas producer has been distributing its spare cash back to shareholders. TOU stock’s base dividend is up 110% in the past four years, and it has paid 10 quarters of variable dividends (some very substantial).

Natural gas prices are at near-record lows, so variable dividends are lower so far this year. Yet, if there is a recovery in natural gas, there will likely be a big rise in its variable dividend as well.

Cenovus: An energy stock starting to hit its mark

Cenovus Energy (TSX:CVE) still has some work to do, but it could provide substantial returns to shareholders in the years ahead. It is both a major energy producer and a refiner in North America.

Its refinery operations have had some challenges recently. Fortunately, it appears those issues are dissipating. Many refineries are now hitting capacity.

Like CNQ, it has really high-quality oil assets. It has over three decades of reserves. The company is focused on hitting $4 billion of net debt. While it has taken longer than many investors wished, it should get there quicker with oil trading over US$80 per barrel.

Once it hits its target, 100% of free cash flow will be heading towards shareholders. CVE only yields ~2%. It has increased its base dividend by over 700% in the past four years. The stock also paid a special dividend in 2022. There is likely more to come, especially once it hits its debt target in 2024.

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 Robin Brown has positions in Cenovus Energy and Tourmaline Oil. The Motley Fool recommends Canadian Natural Resources and Tourmaline Oil. The Motley Fool has a disclosure policy.

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