Dividend Darlings: 3 Canadian Stocks That Are Too Good to Ignore

Rising bond yields are headwinds for stocks, but income-investors can’t pass up on these three high-yield Canadian stocks.

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Rising bond yields are headwinds for stocks, although the impact is hardly felt or negligible in the energy sector. Thus far in 2024, energy has outperformed with its nearly 20% year-to-date gain. Moreover, three Canadian stocks stand out for their market-beating returns and generous dividends.

Paramount Resources (TSX:POU), Headwater Exploration (TSX:HWX), and Gibson Energy (TSX:GEI) contradict the relationship between bonds and stocks. Despite the threat of rising bond yields, these dividend payers are too good to ignore for income-focused investors.

Top growth stock

Paramount Resources ranked number one in the 2023 TSX List, the flagship program for Canada’s top growth stocks. At $31.98 per share, current investors enjoy a 25.6% year-to-date gain on top of the 4.92% dividend yield. This energy stock rewarded investors with a 224.6% return in three years. Furthermore, the payout frequency is monthly.

The $4.7 billion company develops petroleum and natural gas reserves (conventional and unconventional) and resources in Canada. Paramount prioritizes shareholder returns through dividends and organic growth. In Q1 2024, net income declined 65.4% year over year to $68.1 million, yet the Board approved a 20% increase in the regular monthly dividend.

While free cash flow (FCF) during the quarter was negative at $9.5 million, management’s guidance for 2024 is a positive FCF of $205 million and assures that dividend payouts are fully funded.

Prolific small-cap stock

Headwater Exploration trades at only $7.38 per share (+19.6% year to date) but this small-cap stock pays a hefty 5.42% dividend. The $1.8 billion oil and gas exploration and development company is also a TSX 30 winner in 2023 (ranked 16th). It boasts high-quality oil production and reserves in Marten Hills, Alberta, and low-decline natural gas production and reserves in the McCully Field.

Management’s multi-year business strategy is to grow base production while maintaining positive adjusted working capital and growing the quarterly dividend.

In Q4 2023, sales, net income, and cash flows from operating activities increased 28%, 14%, and 36% respectively to $131.7 million, $45.5 million, and $90.7 million versus Q4 2022. The average net income in the last two years is $159 million, or 249% higher than in 2021. Notably, dividends declared in 2023 rose 304% year over year to $94.4 million.

Cash cow     

Gibson Energy is a cash cow, given its 7.4% dividend. At $22.16 per share, the mid-cap energy stock outperforms the TSX (+12.06% versus +4.13%). The asset base of this $3.6 billion liquids infrastructure company includes storage facilities with 25.2 million barrels capacity and crude pipelines in North America stretching over 500 kilometres.

Net Income in 2023 declined 4% to $214 million due to acquisition and integration costs, and higher finance costs. Still, retiring President and CEO Steve Spaulding said it was a record-breaking year for Gibson. He adds that distributable cash flows reached all-time highs for the second consecutive year ($386 million in 2023).

Management’s priority is to fund the business and then return capital to shareholders when it is fully funded. Gibson’s competitive advantage is the liquids infrastructure asset that has consistently grown and delivers quality cash flows.

Dividend darlings

The energy sector, including these three dividend darlings, is outperforming the TSX. Paramount Resources, Headwater Exploration, and Gibson Energy are profitable options for yield-hungry income investors.  

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends Gibson Energy. The Motley Fool has a disclosure policy.

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