Although many investors tend to view the energy sector as just oil and gas production, it actually offers a wide range of opportunities and several high-quality stocks.
It’s one of the most important parts of the economy, but it’s also known for its volatility. Not to mention, it’s one of the best places to find high-quality dividend stocks. So, if you do your research and focus on high-quality businesses instead of speculative names, the sector can be extremely rewarding over the long haul.
Another advantage of the energy sector is that there are a tonne of different ways to invest. There are traditional producers, energy infrastructure stocks, service and equipment companies, and of course, one of the fastest growing industries, green energy.
In fact, two of the best energy stocks Canadian investors can choose from today are Canadian Natural Resources (TSX: CNQ) and Brookfield Renewable Partners (TSX: BEP.UN).
Canadian Natural Resources is a massive, $93 billion traditional energy producer with a long track record of generating cash flow and returning capital to shareholders.
Brookfield Renewable, on the other hand, is a globally diversified renewable energy company focused on long-term growth, predictable cash flow, and a steadily growing distribution.
Both are high-quality businesses in their respective industries, play critical roles in the global energy system, and can be excellent long-term investments in the right portfolio.
So, the key difference is not which company is better, but which stock makes more sense for your portfolio and your investing goals. With that in mind, let’s look at what each stock does well and the type of investor each one is best suited for.
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Why Canadian Natural Resources is a top TSX energy stock
If you’re looking for a traditional energy producer to add to your portfolio, Canadian Natural Resources is one of the best in the world.
Its massive size and diversified portfolio of oil and gas assets, which focus on long-life, low-decline production, allows the company to generate significant amounts of free cash flow, even in less favourable commodity environments.
What really separates CNQ from many of its peers is how it uses that cash flow. Over the years, management has focused on strengthening the balance sheet, returning capital to shareholders, and steadily increasing the dividend, just like Brookfield Renewables.
That’s why Canadian Natural Resources has one of the most reliable dividend growth records in the Canadian energy sector.
It’s the perfect energy stock for investors who want a company that can provide an attractive, growing, and sustainable dividend while offering exposure to the energy sector.
In fact, in just the last five years alone, its dividend has been increased by over 150% and today offers a yield of roughly 5.2%.
Why Brookfield Renewable Partners is one of the best long-term holdings
There’s no question that green energy stocks have some of the most long-term growth potential of any sector, and Brookfield Renewables is a main leader in the space.
Brookfield owns and operates renewable power assets across hydro, wind, solar, and storage. These assets are spread across multiple continents and are often backed by long-term contracts or regulated frameworks, ensuring as much risk is mitigated as possible.
So, while Brookfield is a growth stock that does invest in newer projects, it’s also a company that already generates a significant amount of highly predictable cash flow.
That means, like Canadian Natural Resources, Brookfield offers an attractive and consistently growing dividend. Not only does the stock offer a yield of roughly 5.6% today, but it also targets 5% to 9% annual distribution growth, while retaining enough cash to fund future expansion.
Which energy stock is better for your portfolio?
There’s no doubt that Brookfield Renewable Partners and Canadian Natural Resources are two of the top energy stocks on the TSX.
Investors could certainly look to own both over the long haul, but if you’re deciding today and your portfolio already has significant exposure to growth stocks, technology, or renewables, adding Canadian Natural Resources can provide balance through income, cash flow, and traditional energy exposure.
On the other hand, if your portfolio leans more toward income, financials, or traditional industries, Brookfield Renewable Partners can add long-term growth potential tied to one of the most important global trends of the next several decades.
