The Canadian stock market has surged in the last few weeks. Since the Bank of Canada announced interest rate cuts, the S&P/TSX Composite Index has consistently rallied to new all-time highs. As of this writing, the Canadian benchmark index is up by a massive 12.3% in the last six months.
Despite the surge, Canadian energy stocks are underperforming the broader market right now. In the same period, the S&P/TSX Capped Energy Index is down by 1.1%. As the energy sector lags behind the rest of the market, it might be a good time to look for good investments in the industry.
Plenty of the top energy stocks look attractive, making the industry attractive for investors who want to lock in high-yielding dividends and capture long-term capital gains. Today, I will discuss two stocks you can consider adding to your self-directed portfolio to leverage a lagging energy sector.
Suncor Energy
Suncor Energy Inc. (TSX:SU) is a Canadian integrated energy company headquartered in Calgary. With a $70.7 billion market capitalization, it specializes in producing synthetic crude oil from its oil sands operations.
The integrated business model makes it an attractive investment. In addition to producing synthetic crude from oil sands, it has refineries and operations to sell finished products through a massive fuel station network.
Due to geopolitical concerns, its share prices surged by 13.1% between September 26 and October 11, 2024. Oil traders are concerned about the tensions between Israel and Iran. If Israel decides to attack Iran’s oil infrastructure, retaliation from Iran can disrupt global oil supplies.
The worst-case scenario could see oil prices rise to around US$200 per barrel. As of this writing, Suncor stock trades for $44.62 per share. Suncor stock boasts a 3.9% dividend yield.
Canadian Natural Resources
Canadian Natural Resources Ltd. (TSX:CNQ) is a $109.3 billion market capitalization Canadian energy company also headquartered in Calgary. Unlike Suncor, it is primarily an upstream energy company. CNQ boasts the largest natural gas and oil reserves in Canada, with a proven reserve life index of over 30 years. It has almost twice the peer average reserve life of its peers.
CNQ is the top oil producer and second-largest natural gas producer in the country, making it easily one of Canada’s safest upstream energy companies. While it does not offer much upside in terms of rapid capital gains, it offers earnings reliability for investors through dividends.
The Canadian Dividend Aristocrat has increased its payouts at a 21% compound annual growth rate for the last 24 years. As of this writing, CNQ stock trades for $51.71 per share and boasts a 4.4% dividend yield.
Foolish takeaway
Amid the ongoing weakness in the energy sector, these two fundamentally solid stocks look too attractive to ignore. If you seek a solid long-term bet for dividends alone, CNQ stock has a reliable track record that makes it a sound holding to consider for your portfolio. If you are looking for a combination of dividends and capital gains, Suncor stock might be an attractive addition to your self-directed portfolio.
