Canadian oil stocks have generated significant shareholder wealth in the last two decades. For instance, one of the largest oil and gas companies in Canada is Suncor Energy (TSX: SU). Valued at a market cap of $70 billion, Suncor Energy has returned 236% to shareholders in the past two decades. However, after adjusting for dividends, cumulative returns are much higher at 441%. Comparatively, the TSX index has returned less than 410% to investors since May 2004.
Despite these outsized gains, Suncor Energy offers shareholders a tasty dividend yield of 4%, given its annual payout of $2.18 per share.
How did Suncor Energy perform in Q1 of 2024?
Suncor Energy’s upstream production rose by 13% to 835,000 barrels per day in the first quarter (Q1) of 2024. It ended Q1 with adjusted funds from operations of $2.46 per share, while adjusted operating earnings stood at $1.8 billion or $1.41 per share.
The energy giant returned $1 billion to shareholders, including $700 million in dividends. Its operating cash flows allowed Suncor to reduce its net debt by $200 million, as it reported a net debt of $13.5 billion in the March quarter.
Bay Street expects Suncor Energy to report adjusted earnings of $5.51 per share in 2024, up from $5.1 per share in 2023. So, priced at 9.6 times forward earnings, Suncor stock is quite cheap and trades at a marginal discount to consensus price target estimates.
Is CNQ stock a good buy in 2024?
While Suncor Energy has delivered market-beating returns to shareholders in the past, another energy stock that has crushed the TSX index is Canadian Natural Resources (TSX: CNQ). Since May 2004, CNQ stock has returned a monstrous 1,790% to shareholders after accounting for dividend reinvestments. Similar to Suncor, CNQ also offers shareholders a high dividend yield of 3.8% and trades at a compelling valuation.
In Q1 of 2024, Canadian Natural Resources reported adjusted funds flow of $3.1 billion and net earnings of $1.5 billion. It paid shareholders $1.1 billion in dividends and $600 million via buybacks, indicating a payout ratio of less than 50%.
A low payout ratio allows CNQ to reduce balance sheet debt, invest in accretive acquisitions, and allocate funds to organic growth projects. CNQ ended 2023 with a net debt of $10 billion and now aims to distribute 100% of free cash flow to shareholders in 2024.
CNQ increased its quarterly dividend by 5% to $1.05 per share. In the last 24 years, these payouts have risen by more than 20% annually, showcasing the resiliency of its cash flows.
The TSX behemoth ended Q1 with a debt-to-earnings before interest, tax, depreciation, and amortization ratio of 0.6 times, which is quite good. CNQ’s liquidity position is also robust, with reserves of $6.8 billion at the end of Q1.
Despite its outsized gains, CNQ stock trades at 14 times forward earnings, which is reasonable, given analysts expect earnings to improve from $7.47 per share in 2024 to $9.18 per share in 2025. Analysts remain bullish and expect CNQ stock to gain over 6% in the next 12 months.
