In case you haven’t noticed, volatility in oil prices has resurfaced. Normally, this puts pressure on Canada’s massive energy sector, but there are some Canadian energy companies that are holding strong.
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How much have oil prices dipped?
Oil futures have slipped as much as 5% this month. Year to date, that number works out to a 16% dip, with both West Texas Intermediate (WTI) and Brent trading near US$58 per barrel.
As to why prices are dropping, there are a few reasons. These range from global supply rising to geopolitical tensions. But how does this impact Canadian energy companies?
Some have held up better than others.
Here’s a trio of options that are built around long-lived assets, steady cash flows and regulated business operations that every investor should consider.
Let’s look at them one at a time.
Enbridge
Enbridge (TSX:ENB) is one of the largest energy infrastructure companies on the planet. The company is best known for its massive pipeline network, which has both crude and natural gas elements. It also has a renewable energy business and a natural gas utility.
The pipeline business transports huge amounts of Canadian crude exports — specifically, one-third of all North American-produced crude.
Turning to natural gas, that number is equally impressive. Enbridge provides enough natural gas to meet the needs of one-fifth of the U.S. market.
Collectively, the segment operates like a toll road. Enbridge charges for the use of its pipeline network, regardless of which way oil prices move.
Between the reliable pipeline revenue, Enbridge’s long-term contracts, and regulated utility returns, the impact from falling oil prices is limited.
This allows the company to continue paying a juicy yield. As of the time of writing, that dividend works out to a tasty 5.62%. Enbridge has also bumped that dividend annually for three decades without fail
In short, Enbridge is one of the top Canadian energy companies to consider now.
TC Energy
TC Energy (TSX:TRP) is another major North American energy infrastructure player. The company operates natural gas pipelines that connect producing regions to utilities, power plants, and LNG export facilities.
That network traverses Canada, the U.S., and Mexico. TC Energy also owns liquids pipelines and power and storage assets, but the backbone of the company is that large regulated natural gas transmission network.
And because that pipeline business operates through regulated long-term contracts, the company earns a reliable, recurring revenue stream. That revenue stream, in turn, allows TC Energy to invest in growth and pay out a robust dividend.
As of the time of writing, that dividend carries a yield of 4.49%.
More importantly, like Enbridge, TC Energy’s returns are shielded from much of the volatility in the market. That is primarily thanks to those long-term regulated contracts.
For investors, this means TC Energy generates more predictable cash flows and dividends. It also makes it one of the Canadian energy companies to be on every investor’s shortlist.
Canadian Natural Resources
The third option for investors looking at Canadian energy companies holding strong despite oil price drops is Canadian Natural Resources (TSX:CNQ).
Canadian Natural Resources is one of the largest independent oil and gas producers in the world. The company has a focus on oil sands mining and upgrading, thermal heavy oil projects, and conventional crude oil and natural gas production in Western Canada.
The oil sands mining projects are known as long-life, low-decline assets. This means that once the upfront spending to begin operations is done, production operates with minimal ongoing spend.
In other words, it can provide strong cash generation lasting for decades. That front-loaded spending also means that CNQ has fared better than many of its peers, as it can focus on paying down debt and improving efficiency.
In terms of a dividend, CNQ offers investors a tasty 5.01% yield. This makes it yet another great option for investors seeking one or more Canadian energy companies for any portfolio.
Are you buying these Canadian energy companies?
Together, Enbridge, TC Energy, and Canadian Natural Resources showcase how three different Canadian energy companies can stay resilient when oil prices soften.
In my opinion, one or all of the above should be core holdings in any well-diversified portfolio.
