With oil prices down for the year, it hasn’t been a great year for TSX energy stocks. However, it does mean you can pick up some quality energy stocks at attractive valuations.
Canadian energy stocks have done a good job of improving both their cost structures and balance sheets. Likewise, the sector has consolidated to the point where the largest providers are often the best. If you are wondering what stocks to buy for the next oil bull run, here are three to consider buying now.
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Pembina Pipeline: An energy stock with less commodity exposure
Pembina Pipeline (TSX:PPL) is an indirect way to play the energy market. Most of its income is contracted, so you have less direct commodity exposure. It is one of the largest pipeline and midstream businesses in Western Canada. The company has a diverse mix of assets that provide collection, processing, transport, and export opportunities for energy producers.
Pembina has delivered steady growth over the past several years. It sits with a sector-leading balance sheet. The company generates strong free cash flows so it can self-fund its own capital growth plans.
It is only one of a few companies with approval for and constructing an LNG terminal on the B.C. West Coast. Already, Pembina has seen very strong demand to contract that asset.
Pembina stock yields 5.6% today. The company has been raising its annual dividend by a low single-digit rate. Given its strong balance sheet, this is very likely to continue.
Canadian Natural Resources: The largest energy company
The greatest of TSX energy stocks has to be Canadian Natural Resources (TSX:CNQ). Not only is it the largest Canadian energy producer, but it is also one of the best-operated energy companies. It has cost of production that is in the mid-$40s.
As a result, it can generate strong free cash flow in almost any energy environment. Canadian Natural has been using its cash to consolidate its position in the oil sands market. It fully took control of a couple of joint venture projects last year. Those investments are starting to yield attractive returns.
Now it can place more focus on returning capital back to shareholders. More share buybacks and dividend increases are likely in 2025 and beyond. CNQ has raised its dividend annually for 25 consecutive years (at a 21% compounded annual growth rate no less)!
Today, this energy stock yields 5.5%. Given it has decades of reserves, it is likely to pay a growing dividend for many more years to come.
Tourmaline: A gassy energy stock
Tourmaline Oil (TSX:TOU) is another high-quality energy stock in Canada. While it is the largest natural gas producer in Canada, it also has a substantial oil business.
Demand for natural gas is expected to continue rising as global demand for electricity continues to rise. Tourmaline should especially benefit from several LNG export terminals going online on the Canadian West Coast.
Tourmaline already has access to sell its natural gas to high-priced markets. However, LNG access will act to broadly increase prices in Canada (where it is a producer).
Tourmaline has a strong balance sheet with almost no net debt. Like CNQ, the company has been consolidating the natural gas production market in Canada. However, excess cash has been returned in the form of special dividends and a growing base dividend.
Today, this energy stock yields 3%. However, when you add its trailing special dividends, it yields closer to 5.7%. With decades of reserves, it too should be dishing out years of cash flow to patient, long-term shareholders.
