Dividend investors seeking above-average yields and deeper value have many options to pick from in the energy sector. Undoubtedly, heavy crude names sport heavy yields nowadays! And for passive income investors, that’s about as much as you could ask for in this climate.
Indeed, energy prices haven’t been blasting off this year, but I do think that many of the best operators remain buys, even in the face of immense volatility and various macro factors that could move the needle on the commodities they produce. Indeed, energy investing is not an exciting place to be these days. That is, unless you’re a long-term value investor who’s willing to ride out a storm while being paid a fat dividend for doing so.
In this piece, we’ll highlight two energy stocks that could be a great bet as oil prices look to ascend back above the US$70 per barrel level in the second half. Indeed, we’ve seen some vicious moves in both directions for the price of oil in recent months.
And while it’s impossible to know where oil will be in a year or even three years from now, I do think that sticking with the best-in-class operators is a solid bet, especially as most other investors leave for “hotter” and timelier trading opportunities in the market. Though less than timely at the midpoint of the year, I view the following trio as deeply discounted, making them perfect pick-ups for those enticed by dividend lovers.
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Canadian Natural Resources
No list of top-tier Canadian energy producers is complete without mentioning Canadian Natural Resources (TSX: CNQ). It has been a leader in the energy patch for a reason. The company not only has some impressive (and improving) operating economics under its stellar managers; the firm also has untapped reserves that could fuel many decades’ worth of durable growth.
Indeed, oil prices may fluctuate widely over the near-to-medium term, but Canadian Natural looks like an absolute cash cow over the long haul. At the end of the day, it’s not about predicting where oil heads next, but driving production costs lower such that the cash can flow through thick and thin.
As one of the more resilient energy players that’s proven to be shareholder-friendly (the magnitude of dividend growth has been tough to top), I’d look no further than this energy top dog if you want yield at a reasonable price. At the time of writing, shares yield a well-covered 5.5%. And with an 11.9 times trailing price-to-earnings (P/E) multiple, you’re not paying all that much for the cash cow. If energy prices really bounce back in the second half, I’d look for CNQ as a breakout play.
Suncor Energy
Suncor Energy (TSX: SU) stock is slightly cheaper than CNQ, with an 11.1 times trailing P/E ratio. The dividend is nearly a percentage point lower, though, currently sitting at 4.5%. And while the dividend history isn’t as respectable as that of CNQ, I still think its payout has room for impressive growth over the next three years.
Like Canadian Natural, Suncor owns a ton of oil sands reserves that can keep the cash flowing for more than two and a half decades. For investors who want more of an integrated energy play that covers more bases, Suncor may be the better bet, especially at current prices.
Additionally, it’s this integrated business that makes Suncor a bit less choppy than Canadian Natural, especially when oil prices are fluctuating significantly in response to macro events (SU stock has a 1.2 beta vs. 1.5 for CNQ). Either way, I think both energy stocks are a great source of dividends and long-term growth, regardless of what oil does next.
