Gas prices. These have constantly been an issue when it comes to our daily lives. The worst part? It’s almost impossible to budget when the price surges up and down. Yet there is a way to offset some of those costs, and that’s through investing.
But hold on, because when it comes to dividend stocks, energy stocks can be some of the best. Yet some of these energy stocks are volatile during these times of fluctuating gas prices, whereas others are not. That’s why today we’re going to look at what to consider when choosing energy dividend stocks, and two that fit the bill.
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What to watch
If you’re looking at energy stocks that can support a dividend long term, there are a few items to consider. First, look for dividend stocks with a strong dividend history, maintaining yields through every type of market cycle. High yields can look enticing, but the company needs to sustain those payouts.
Then there’s cash flow. Investors will want to evaluate the dividend stock’s ability to generate stable operating cash flow, which supports those dividend payments even in volatile markets. Strong cash flow means strong financial health, thus the ability to maintain dividends. This would mean looking at debt as well. Companies with manageable debt levels and strong balance sheets are better positioned to weather the rough ride and keep dividends going. A low debt-to-equity ratio can be your best friend.
Finally, there’s future growth. Efficient operations and effective cost management not only buffer volatile prices but also allow companies to expand. So consider companies that have a clear growth strategy with ongoing projects to contribute to future earnings, whether through strategic acquisitions or infrastructure upgrades. And ideally? Those growth projects are diverse, operating in different areas and segments to maintain a competitive edge.
Two to consider
With all this in mind, let’s look at two options for investors on the TSX today, Cenovus Energy (TSX:CVE) and Gibson Energy (TSX:GEI). First, Cenovus, which offers a dividend yield of 3.4% – not the highest, but still appealing. Its focus remains on returning capital to shareholders through buybacks as well as dividends. And the dividend stock remains strong, with $2.4 billion generated from operations, allowing room to reduce debt and return cash to shareholders. What’s more, the company is growing through the Narrows Lake and West White Rose offshore initiatives. These projects allow it to maintain operational efficiency, crucial during volatility.
As for Gibson, it holds a high 6.5% dividend yield at writing, which again is quite attractive for those seeking consistent income. It also has the completion of key projects underway, such as Gateway dredging, which has enhanced throughput and operational capacity. Therefore, Gibson is looking more stable than ever. Investors will want to keep an eye on debt, but this should normalize by 2026.
Bottom line
Both Cenovus and Gibson offer strong dividend stocks for those seeking long-term income amid gas price volatility. Cenovus offers a balanced approach for growth and income, with Gibson holding a higher yield. Investors should therefore consider each company and how each aligns with your investment strategy, especially during times of volatility.
