Natural gas is a key fuel of choice to meet growing energy needs. This has become increasingly evident as countries around the globe search for inexpensive and reliable fuel, and as North American energy demand continues to rise.
In this article, I will discuss two Canadian natural gas dividend stocks to consider buying for attractive total returns – that is, dividend income plus growth.
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Peyto Exploration and Development
Natural gas stock Peyto Exploration & Development Corp. (TSX: PEY) is one of Canada’s largest natural gas producers. Peyto’s competitive advantage stems from its long-life, low-cost reserves and diversified set of markets and customers. This has enabled the company to thrive even when Canadian natural gas prices are low.
In Peyto’s latest quarter, we could see the benefits of its top-quality asset base as well as its operational and marketing strategies. Production increased 8%, earnings per share (EPS) increased 65%, and funds from operations increased 22%. This was all against a backdrop of low Canadian natural gas prices and production setbacks due to weather.
The key takeaways worth focusing on are simple yet important. Firstly, Peyto continues to perform exceptionally well operationally. For example, in its latest quarter, the company reduced its cash costs by 13%. Also, Peyto has been targeting premium markets for its natural gas. This has meant that there was little exposure to Canadian natural gas pricing in the quarter.
Secondly, Peyto remains well-exposed to the growth in natural gas demand that the new LNG Canada facility will bring to the Canadian market. With the first LNG cargo out of LNG Canada having been shipped on June 30th, we can expect natural gas demand to benefit measurably.
Finally, Peyto’s stock has performed quite well in the last few years. In my view, Peyto’s stock price performance will continue to be strong. This, along with the stock’s current 7% dividend yield, makes Peyto Exploration a natural gas stock to own.
Tourmaline Oil Corp.
Over at Tourmaline Oil Corp. (TSX: TOU), the story has been pretty similar. This is another natural gas stock that has ridden the rise in natural gas demand by targeting premium natural gas markets and keeping costs low.
In Tourmaline’s latest quarter, operating cash flow increased 9% to $823 million and EPS increased 141% to $1.35. A special dividend of $0.35 per share was announced, and Tourmaline’s regular dividend of $0.50 was maintained. In the last few years, Tourmaline’s stock price has also been very strong. As you can see from the graph below, TOU’s stock price has increased by 290% in the last five years.
Looking ahead, I think good things are in store for Tourmaline, as this natural gas producer is participating heavily in the very lucrative LNG market. Its latest LNG deal was recently signed with Uniper, a German-based energy company. Uniper has global reach and operations in more than 40 countries. This agreement will see Tourmaline supplying natural gas to the US Gulf Coast for an eight-year term beginning in November 2028.
The bottom line
We continue to hear about the positive outlook for the natural gas market. This is coming from energy infrastructure companies, natural gas producers, utilities companies, and more. The message is that natural gas is a hot global commodity right now. Peyto and Tourmaline are dividend stocks that give us access to this bullish theme, with generous dividend yields and capital appreciation potential.
