3 Canadian Energy Stocks to Buy This Summer

Written by Rajiv Nanjapla at The Motley Fool Canada

Although the S&P/TSX Composite Index has delivered an impressive return of over 12.5% this year, concerns over the impact of protectionist policies on global economic growth persist. Therefore, investors should look to strengthen their portfolios with quality dividend stocks that offer healthier yields. Meanwhile, I am bullish on the following three Canadian energy stocks, which have reliable cash flows from their operations and have rewarded their investors with consistent dividend payouts.

Enbridge (TSX:ENB) would be an excellent dividend pick due to its consistent dividend growth for the last 30 years at an annualized rate of 9% and a high dividend yield of 5.8%. The diversified energy company operates a pipeline network across North America, transporting oil and natural gas under a tolling framework and long-term take-or-pay contracts. Additionally, it operates renewable energy assets backed by power-purchase agreements (PPAs) and low-risk natural gas utility assets, thereby making its financials and cash flows less prone to market volatilities.

Further, the Calgary-based company continues to invest $9–$10 billion annually to expand its asset base. Further, supported by its solid performance this year, the company was able to lower its net debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) multiple from 5 at the beginning of this year to 4.7. Also, its healthy liquidity of $12.7 billion would support its growth initiatives, boosting its financials in the coming quarters. Meanwhile, the company’s management projects its adjusted EBITDA to grow at a 5% CAGR (compound annual growth rate) for the rest of this decade, making it an ideal buy.

Another energy stock I am bullish on in this uncertain outlook is Canadian Natural Resources (TSX:CNQ), which has raised its dividend at a 21% CAGR for the last 25 years. Its diversified asset base, lower capital reinvestment, and effective and efficient operations have lowered its breakeven point, thereby driving its profitability and cash flows. These healthy cash flows have allowed it to raise its dividend consistently. Meanwhile, CNQ stock currently offers an annualized dividend payout of $2.35/share, translating into a forward dividend yield of 5.8%.

Moreover, CNQ has significant oil and natural gas reserves, with around 32 years of total proven reserve life index. Also, these reserves predominantly contain high-value SCO (synthetic crude oil), light crude oil, and NGLs (natural gas liquids). Meanwhile, the company continues to strengthen its production capabilities, with a planned capital investment of $6 billion for this year. Along with these growth initiatives, the company is also upgrading its assets and improving operating efficiency, which could boost its profitability in the coming years. Considering all these factors, I expect CNQ to continue with its dividend growth.