Rising fuel costs are hitting Canadian residents hard. One way to potentially offset the impact is for self-directed Tax-Free Savings Account (TFSA) investors to own shares of the companies that are benefitting from higher oil prices. These firms are giving back a good chunk of the profits to their shareholders through dividend payments.

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Canadian Natural Resources
Canadian Natural Resources (TSX: CNQ) is a giant in the Canadian energy patch. The company is best known for its oil sands operations, but also has conventional light and heavy oil, and offshore oil assets, as well as extensive natural gas holdings.
CNRL is large enough and has the balance sheet strength to make large acquisitions when the energy market hits a rough patch and then benefits on the next rebound as prices move higher. The company also expands through its drilling program. CNRL is the full or majority owner of most of its assets. This gives management the flexibility to quickly shift capital around the portfolio to take advantage of changes in energy prices.
Production and commodity prices are only part of the story. Capacity to move oil and natural gas to buyers is also important. The opening of the Trans Mountain pipeline in recent years has enabled CNRL and its peers to ship more production to international buyers through export facilities on the coast of British Columbia.
A new pipeline that runs along the same route could get built in the coming years as Canada pushes to become an energy superpower while looking for ways to reduce reliance on the United States for energy sales.
CNRL has increased its dividend in each of the past 26 years. Profits from the surge in prices this year will enable the company to reduce net debt faster than previously anticipated. Net debt will soon get down to the point where CNRL says it will start returning 100% of free cash flow to shareholders through share buybacks and dividends.
The stock provides a dividend yield of 3.7% right now. Distribution growth should continue.
Outlook
Volatility is part of the energy sector, with prices often moving significantly on geopolitical news, as well as changes in supply and demand.
The U.S. war with Iran has closed the Strait of Hormuz and more broadly resulted in damage to oil and natural gas infrastructure around the Middle East amid attacks by Iran and its supporters on pipelines and production sites in neighbouring countries. Even if the Strait of Hormuz is opened and oil shipments return to normal levels, it will take time for the market to rebalance. Countries around the world have drawn down reserves to low levels. These will need to be replaced, along with the supply that is required for regular energy consumption. As such, prices could remain elevated for some time.
Countries don’t want to get caught out again by any potential future conflicts. Canada is in a good position to capitalize on its position of being a stable and reliable supplier of oil and natural gas for global buyers. If the infrastructure gets built to enable more energy exports, CNRL should benefit.
The bottom line
CNRL is a very efficient energy producer with low break-even costs and the balance sheet strength to ride out the rough times in the energy cycle. If you have some cash to put to work in a dividend portfolio, this stock deserves to be on your radar.