Rapid urbanization, the rise in industrial activities, the electrification of transportation, and the expansion of data centres resulting from increased use of artificial intelligence (AI) could continue to drive global energy demand in the years to come. Given the favourable environment, I am bullish on the following three energy stocks, which are currently trading below $200.
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Enbridge
Enbridge (TSX: ENB) is one of the top energy stocks to have in your portfolio due to its regulated and low-risk assets, consistent dividend growth, and healthy growth prospects. The company operates a diversified asset base, generating cash flows from over 200 assets. Its regulated asset base and long-term contracts provide stability to its financials. Supported by these reliable cash flows, ENB stock has been paying dividends since 1955. Also, it has raised its dividends uninterruptedly since 1995 at an annualized rate of 9%. Its current dividend payout of $0.9425/share translates into a forward dividend yield of 6.1%.
Moreover, Enbridge has identified $50 billion in growth opportunities spanning over the next five years. Meanwhile, the company plans to make capital investments of $9 billion to $10 billion annually to expand its asset base. Given its healthy liquidity position, the energy giant is well-positioned to fund its growth initiatives. Further, ENB stock maintains a sustainable payout ratio of 60–70% of its DCF (discounted cash flows). Additionally, considering its solid underlying business and healthy growth prospects, management expects to raise its dividend by 3% annually until 2026 and 5% thereafter. ENB trades at a reasonable NTM (next 12 months) price-to-sales multiple of 2.7, making it an attractive investment opportunity for investors.
Canadian Natural Resources
Another energy stock I am bullish on is Canadian Natural Resources (TSX: CNQ), a leading producer of crude oil and natural gas. The Calgary-based energy company operates large, low-risk, and high-value reserves that require lower capital reinvestments. Besides, its efficient and effective operations have led to lower breakeven oil prices, thereby driving its financials and cash flows. Supported by its healthy cash flows, the company has increased its dividends at a 21% CAGR (compound annual growth rate) over the past 25 years. It currently offers a healthy forward dividend yield of 5.5%.
Further, CNQ plans to invest $6 billion this year, thereby strengthening its production capabilities. Amid its growth initiatives, the company’s management predicts that its total production this year will come in between 1,510 and 1,555 barrels of oil equivalent per day (BOE/d). The midpoint of this guidance represents a 12.5% increase from the previous year. Notably, OPEC (the Organization of the Petroleum Exporting Countries) is predicting a rise in oil demand this quarter, which could support oil prices. Therefore, increased production and higher oil prices could drive CNQ’s financial performance in the coming quarters, making it an ideal buy.
Northland Power
Northland Power (TSX: NPI), which develops, owns, and operates a diversified energy infrastructure, is my final pick. It has an economic interest in approximately 3.4 gigawatts of power-producing facilities. The company has outperformed the S&P/TSX Composite Index this year, with returns exceeding 33%. The improvement in broader equity markets and progress the company has made in developing some of its key projects appear to have made investors optimistic, driving its stock price higher.
Meanwhile, the company sells most of the energy produced from its facilities through long-term contracts, which account for approximately 90% of its revenue. The weighted average life of these contracts stands at 15 years. Therefore, its financials are less susceptible to volatile market conditions. Further, the company has 2.2 gigawatts of projects under construction, which could support its financial growth in the years to come. The management expects its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) to grow at a 7–10% CAGR through 2027. Therefore, I expect Northland Power, which currently offers a healthy forward dividend yield of 5.2%, to continue paying dividends at a higher rate. Its valuation also looks attractive, with its NTM price-to-earnings multiple at 14.6.
