Think Oil Is Going Higher? 3 Dividend Stocks to Buy Now

Looking for steady dividend growth? These three Canadian oil stocks could provide substantial dividend income in the coming years.

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It has already been a volatile year for oil prices and oil stocks. Oil prices started 2024 at around US$70 per barrel. They then peaked at nearly US$90 per barrel in April. Since then, oil has collapsed to US$76 per barrel.

Oil prices have always been volatile. However, they have been bound between a range of US$70 per barrel and US$100 per barrel over the past three years. That’s a decent range for Canadian energy producers.

Oil stocks are in a good position to deliver steady income

Over the past several years, Canadian energy stocks have significantly de-risked their business models. They have drastically reduced debt and improved their balance sheets. Likewise, they have focused on operational efficiencies, cost reductions, and profitability.

For many Canadian energy stocks, free cash flow maximization is the name of the game. Growing energy production is no longer the strategy. As a result, many of these companies can pay and sustain substantial growing dividends to shareholders.

If you are looking for dividend income, oil stocks are a nice place to get exposure. Here are three stocks that are delivering safe, growing dividends.

An energy infrastructure stock

Pembina Pipeline (TSX:PPL) stock is a way to get exposure to oil and gas but with limited energy pricing exposure. Pembina owns and operates energy infrastructure assets across Western Canada. This includes collection and egress pipelines, storage, export terminals, and natural gas processing facilities.

Around 85% of Pembina’s earnings are contracted. It uses this to support its attractive 5.5% dividend. Over the past few years, Pembina has used strong cash flow generation to moderate debt. Over the past three years, the company has increased its dividend annually.

Today, it sits with a very solid balance sheet that provides dry powder to invest in growth projects. For a safe and steady dividend, Pembina is a quality energy stock to hold.

A top Canadian energy producer

If you are more interested in oil stocks, Canadian Natural Resources (TSX:CNQ) is probably one of the top bets for dividends. It has a number of advantages, including long-life assets, low-cost production, and an efficient operating culture.

The company’s slate of oil sands and conventional assets has produced a safe and steady stream of income for investors. Over 24 years, it has grown its annual dividend by a 21% compounded annual growth rate (CAGR).

Since early 2023, it has increased its quarterly dividend three times for a collective 24% increase. CNQ hit its $10 billion debt target early this year.

It now plans to return all its excess cash flow back to shareholders. While it yield 3.9% today, that yield is likely to grow as more cash heads to shareholders.

An integrated oil stock

Cenovus Energy (TSX:CVE) is an interesting way to get exposure to an integrated oil stock. It is a major energy producer, but it also has large refining operations across North America.

The company has very good energy assets with several decades of reserves. It has had some issues with its refining operations. However, it has worked through most of those issues. Its refining capacity continues to increase. It delivered strong first quarter a few weeks ago.

Even though oil prices have recently dipped, gasoline prices have not. That bodes well for Cenovus because it can increase the spread on its refining margins.

Cenovus only pays a 2.7% dividend yield. Its dividend per share is up almost 10 times since 2020. The company is pursuing a $4 billion debt target. When it hits that, it plans to deliver all spare cash to shareholders. That means further dividend growth and even the potential for special dividends ahead.

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. The Motley Fool recommends Canadian Natural Resources and Pembina Pipeline. The Motley Fool has a disclosure policy.

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