Oil prices remain above US$70 and natural gas prices are fast-approaching $5. This sets the stage nicely for energy stocks. If you have $1,000 and are looking for the right stocks to buy, keep reading because I have three suggestions for you.
Without further ado, here are three energy stocks to buy today for what I think will be solid returns tomorrow and beyond.
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Freehold Royalties
Freehold Royalties (TSX: FRU) is a Canadian oil and gas company that’s engaged in the production and development of oil and natural gas. The company simply collects royalties on its land holdings and distributes them to its shareholders. So, Freehold has an advantage as it receives payments without incurring any of the financial expense of the business.
As a North American energy royalty company, Freehold has a diversified asset base across the US and Canada, receiving royalties from more than 360 companies. This means that there’s plenty of cash available to distribute to shareholders. In fact, Freehold has a 29-year dividend history and is currently paying record dividends. The stock is currently yielding a very attractive 8.4%.
Pason Systems
Another energy stock that’s very attractively positioned today is Pason Systems Inc. (TSX: PSI). Pason provides equipment and services that oil and gas production companies require. In Pason’s case, the equipment that it supplies is digitized platforms that give operators an unprecedented view into their oilfields. The company is a technological leader in the oil patch, and has been digitizing the oil patch for decades.
North American drilling and completions activity has been weak as of late. This has driven weaker financial results at Pason as well as a stock price decline. As you can see from Pason’s stock price graph below, the stock has fallen 5% in the last year.
But the silver lining here is that Pason stock is cheap as it’s heading into a period of increased drilling. In fact, the stock is currently yielding 3.9% and is trading at a mere 8.8 times earnings.
Peyto Exploration and Development
Peyto Exploration and Development Corp. (TSX: PEY) is a Canadian natural gas producer with assets in the Alberta Deep Basin, one of Canada’s most prolific basins. This basin has a high-return production profile with high recoveries and good predictability.
As a result of these high-quality assets, Peyto has been able to operate at industry-leading low costs. This has translated into strong cash flows and an attractive dividend payout profile. In fact, Peyto’s dividend yield is currently a very generous 7.9%. And it’s a dividend that I think is highly dependable. This is because Peyto’s dividend represents 60% of its earnings and only 35% of its cash flow.
Looking ahead, natural gas prices are expected to continue to strengthen as demand rises along with liquified natural gas (LNG) demand. This increased acceptance of natural gas as an attractive energy source is driving a strong secular trend. This will clearly benefit natural gas producers like Peyto.
The bottom line
Energy stocks are looking good today as natural gas and oil demand are high and rising. The three energy stocks to buy discussed in this article are all solid energy companies that have not seen their stock prices rise as have some of their larger counterparts. I believe that now is the time to buy them.
