Energy bulls are looking for top TSX energy stocks that pay good dividends and offer a shot at decent long-term total returns.
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Oil and gas price outlook
Natural gas is trading near its high point for the year, while oil prices continue to face headwinds. Analysts expect the trend to continue into 2025.
International demand for Canadian and U.S. natural gas soared after the start of the war between Russia and Ukraine. Europe historically relied on natural gas from Russia to fuel its manufacturing and household energy needs. In an effort to secure reliable supplies, Europe and other international buyers are seeking out liquified natural gas (LNG) shipments from North American producers. The United States already has several LNG export facilities in operation. Canada is in the process of building new sites on the coast of British Columbia. Increased access to global markets should be positive for Canadian natural gas producers.
Domestic natural gas demand is also expected to be strong. Gas-fired power generation is forecast to grow due to rising electricity demand from new artificial intelligence data centres.
Oil’s outlook over the medium term is less positive. Weak demand from China is combining with growing supply from non-OPEC countries, including the United States and Canada. OPEC just announced it will delay a planned supply increase until next spring, citing the soft demand outlook. That being said, an escalation in the conflict in the Middle East could quickly send oil prices higher. For example, an attack by Israel on Iranian oil facilities or the blocking of the Strait of Hormuz by Iran would severely disrupt oil markets.
Given the market uncertainties, it makes sense for energy investors to look for companies that have diversified revenue streams and solid balance sheets to ride out volatility.
Suncor
Suncor (TSX: SU) is known for its oil sands production, but the company also owns refineries that turn crude oil into gasoline, diesel fuel, jet fuel, plastics, and asphalt. In addition, Suncor operates Petro-Canada retail locations. The downstream businesses, as the refineries and service stations are known, provide a good hedge against dips in oil prices that reduce margins on the production side of the business.
Suncor is making good progress on its turnaround efforts. Costs are down, production is growing, and the refineries are running at near capacity. The slowdown in the adoption of electric vehicles by consumers will prolong the need for gasoline and diesel fuel. Airlines are adding planes and routes, so jet fuel demand should remain robust.
Suncor recently raised its dividend by 5%. The stock is down from $58 a few weeks ago to about $44 at the time of writing.
Investors who buy SU stock at the current level can get a dividend yield of 4.2%.
Canadian Natural Resources
Canadian Natural Resources (TSX: CNQ) is a major natural gas producer in Canada, along with being an oil giant. The company has production operations that span the hydrocarbon spectrum, including oil sands, conventional heavy oil, conventional light oil, offshore oil, natural gas liquids, and natural gas.
CNRL recently announced a US$6.5 billion deal to buy Chevron’s Alberta assets. The purchase will boost revenue and reserves. The anticipated cash flow growth should support the 7% dividend increase the board is giving shareholders for 2025.
Investors who buy CNQ stock at the current level can get a dividend yield of 4.9%. The share price is down about 7% in the past six months, so there is an opportunity to take advantage of a pullback.
The bottom line on energy stocks
In the current market conditions, it makes sense for energy investors to look for big names that pay solid dividends. If you are searching for energy stocks to add to your portfolio, Suncor and CNRL deserve to be on your radar.
