The Best Canadian Oil Stocks – Top Energy Stocks for June 2024

WRITTEN BY Dan Kent | UPDATED ON: May 30, 2024

best Canadian oil stocks

Disclaimer: The writer of this article or employees of Stocktrades Ltd may have positions in securities listed in this article. Stocktrades Ltd may also be compensated via affiliate links in this post. Stocktrades Ltd will run advertisements on our posts. These advertisements do not represent an endorsement by us.

The economic situation faced by the stocks of Canadian oil and gas industries, including Canadian pipeline companies, oil producers, and natural gas producers, was unparalleled.

COVID-19 wreaked havoc on all Canadian energy companies as oil demand plummeted, and cash flow was severely impacted.

And as these once-popular Canadian stocks fell, dividend yields rose, and they became attractive opportunities. 

So, many investors are looking to identify the best oil and gas stocks to buy today. Lets dive into them.

What are the best Canadian oil stocks to buy today?

**Bonus** - An alternative option for those looking for Canadian energy stocks in XEG.TO

Yes, this post is supposed to be a list of the best Canadian oil and gas stocks. However, there is no doubt that it may be wise to gain broad exposure to the energy industry rather than buying individual producers and hoping they're successful.

So how do you get this exposure on a producer level? Buying the iShares S&P/TSX Capped Energy Index ETF (TSE:XEG) is one of the most popular ways. This ETF tracks some of the largest oil producers in the country, including integrated oil company Suncor Energy, Cenovus, Tourmaline, Imperial Oil, Canadian Natural Resources and more.

The ETF has $1.9B in assets under management and has fees of 0.61%. You'll have no problem trading shares, as daily volume often exceeds 2.3 million shares.

You won't get any pipeline exposure out of this ETF, so it is important to keep reading this post, as it does include some!

That said, let's move on to the top oil and gas stocks on the Toronto Stock Exchange today.

Parkland Fuel (TSE:PKI)

parkland fuel dividend

The energy sector is broad, and one segment that investors often forget about is the distribution and marketing of fuels and lubricants. Best to pay attention, as some strong companies are in this industry.

One such company is Parkland Fuel (TSE:PKI). Parkland is one of the country's largest independent suppliers and marketers of fuel and petroleum products. It also has a leading network of convenience stores, and refinement capabilities with a refinery in British Columbia.

Parkland has been one of the best energy sector growth stocks over the last decade.

However, in the post-pandemic and high-rate environment, it has struggled with shares grinding lower for most of 2021 and 2022. Recent results have been more positive, and shares have rebounded nicely off the late-2022 lows. 

Over the past five years, it has grown revenue and earnings by an annual average of 20% and 50%. How was the company achieved such an impressive growth record?

Parkland is a serial acquirer and has been scooping up the competition significantly. Over the past four years, it has closed on six transformative acquisitions. Acquisition opportunities may not be as plentiful as they've been in the past, so Parkland has told investors it plants to focus more on improving its stores in 2023-24. 

Yes, the pandemic impacted the company's bottom line. There was less travelling, and working from home has impacted the demand for fuel. Higher interest rates remain a headwind today, with investors worried that a relatively high debt load and increased financing costs will temporarily slow Parkland's growth by acquisition story. 

It trades at a moderate discount (11%) to analysts' estimates with mostly 'buy' and 'outperform' ratings on the stock. Analysts expect it to trade for more than $44 a year from now. 

Parkland has delivered fantastic growth over time, and investors get paid a safe and reasonable 3.5% dividend while they wait from this Canadian Dividend Aristocrat, which has raised the dividend for eight consecutive years.

Canadian Natural Resources (TSE:CNQ)

CNRL stock

We understand – it is tough to invest in oil producers. During the pandemic, there was a notable shift to renewables and the demand for oil cratered. However, demand has now rebounded and declining production will support prices. The IEA expects record world oil demand for 2024. 

In addition, many oil companies are slow to increase production, using today's high prices to pay down debt, give generous dividends to shareholders, and only then reinvesting a portion of their profits into more production.

There is arguably no better operator in the oil industry than Canadian Natural Resources (TSE:CNQ). The company is one of the lowest-cost producers and gas exploration companies. It can maintain positive cash flows despite low oil prices. Canadian Natural also produces various products, including heavy crude oil, bitumen, natural gas, and NGLs.

On a corporate level, CNQ's break-even part is around ~$40/barrel – the lowest among Canadian oil sands producers.

What does this mean exactly? It means the dividend is sustainable even if underlying oil prices plunge. Canadian Natural showed just how strong it was in 2020 and 2021, raising its dividend each year when numerous other oil producers were slashing their dividends.

It then raised the dividend in a big way in 2022, increasing the payout to $0.75 per share, up substantially from 2021's payout of $0.47 per share. Once the company hits short-term debt targets, it is highly likely that we see larger dividend growth or the inclusion of special dividends.

It operates in Western Canada, including the Alberta Oil Sands, the North Sea, and Africa.

The company is now yielding more than 4%, a solid payout when we combine that with its potential to increase that payout over time. It also has a 23-year dividend growth streak, which makes it one of the best income stocks in the country.

The company plans to reduce debt levels to $8B. From there, it plans to return 100% of its free cash flow to investors. So, we can continue to expect some special dividends from Canadian Natural and a lot of buybacks.

If oil continues to hover around US$80/barrel, CNQ is one of the best options in the industry. If oil continues to rise? In this case, Canadian Natural would benefit significantly.

Simply put, this low-cost, disciplined operator is one of the best producers in the industry.

TC Energy (TSX:TRP)

TC Energy Logo

Regarding energy stocks, some of the best in the industry are midstream companies. Why?

They are less susceptible to the price of oil. Although they are vulnerable to lower throughput volumes and bankruptcies from some of the smaller oil & gas companies, earnings are still underpinned by long-term contracts. One of the industry's best is TC Energy (TSE:TRP).

During the pandemic in 2020, TC Energy was shaping up to be the best-performing pipeline of the year until it fell drastically in price to close out the year.

This was primarily from the cancellation of the Keystone pipeline, which looks to be dead for good this time. Both the company and investors moved on. Besides, TC still has over $34 billion in projects in its pipeline, pun intended.

Furthermore, it is one of the best-performing pipelines in the country. The company's status as one of the premier midstream plays has been solidified even further due to its navigation of the pandemic and the fact it operates one of the largest natural gas pipelines in North America.

Furthermore, the outlook remains unchanged as 95% of EBITDA is underpinned by regulated assets and long-term contracts.

Despite thoughts to the contrary, TC Energy is also expected to grow at a decent pace. It has a robust capital program which includes projects in Canada, the United States, and Mexico. 

Currently, issues with its Coastal Gas Link (CGL) project, including rising costs and delays, have put TC Energy in "the penalty box" when it comes to pipelines. Additionally, investors weren't super thrilled with a proposed plan to spin off the oil pipelines into a separate company. 

In short, it's a great time to accumulate this reliable company at cheaper valuations.

The company is also one of the premier income stocks on the TSX Index. It pays an attractive yield north of 7%, which is underpinned by strong cash flows.

Post 2023, it expects the dividend to grow at a compound annual growth rate of 4% at the mid-range. Without a doubt, TC Energy deserves mention whenever we talk about the top energy stocks in the country.

Enbridge (TSE:ENB)

Enbridge dividend

We could have just as easily swapped Enbridge (TSE:ENB) and TC Energy in our rankings. We want you to remember that both of these pipelines are interchangeable in our eyes. So don't fret about one ranking higher than the other.

Much like TC Energy, Enbridge is one of the best midstream companies in the country. What gives Enbridge the slight edge? The dividend.

At 28 years, Enbridge has one of the longest dividend growth streaks in the country. It also currently yields a hefty 7%+, which is above historical averages. Is the dividend safe?

The dividend accounts for only 70% of distributable cash flow, which aligns with the company's target. As such, there is no reason for concern here.

Into 2024, Enbridge expects the dividend to grow in line with distributable cash flow, which is expected to grow by about 5% annually. Rising debt and interest rates are an issue, but one I feel is short-term and manageable.

Enbridge is currently trading at only 16 times forward earnings and 1.7 times book value. Both are considerably below the company's five-year averages as investors are worried about the company's debt in a rising interest rate environment. It trades at a double-digit discount to analysts' one-year price target of $56 per share.

The company also recently announced it was acquiring three natural gas utilities from Dominion Energy. These still have to be approved by regulators, but if Enbridge is given the green light it'll further cement its position as the largest natural gas utility in North America. 

The company generates considerable cash flow and is expected to grow in the high single digits. Can it achieve this growth?

Simply put, there's a reason why so many Canadians hold Enbridge as a long-term investment. It has great assets, a solid dividend, and an achievable growth plan.

Tourmaline Oil (TSE:TOU)

Tourmaline Oil dividend

Tourmaline Oil (TSE:TOU) is one of the largest natural gas producers in the country and is almost a commodity pure-play (~80% of production).

Natural Gas Liquids (NGLs), Condensate and Oil account for the remainder of volumes. Notably, oil prices have been the most impacted energy commodity. Since oil accounts for a low single-digit portion of production at Tourmaline, it wasn't impacted by record-low oil prices during the pandemic.

It is, however, still faced with low natural gas prices. Fortunately, it has been dealing with low natural gas prices for years. It is one of the industry's lowest-cost producers.

The company's disciplined approach has targeted a leverage ratio of 1.0-1.5 times cash flow, with excess free cash flow used to raise dividends and buyback shares.

Furthermore, natural gas fundamentals are improving. Experts believe we should see steadily improving supply/demand dynamics in 2024. 

Tourmaline has faced heavy drawdowns due to the volatility and drop in natural gas prices. Once they stabilize, we wouldn't be surprised if there was upside from today's price levels.

The market dynamics for natural gas appear to be more stable than that of oil. Tourmaline is positioned to continue its strong performance relative to its energy peers. It should return a significant amount of cash flow to shareholders over the next few years.

As it stands today, Tourmaline pays a 1.5% dividend. It supplements that somewhat paltry quarterly payout with regular special dividends, paying $7.74 per share -- or more than 10% of the current share price -- in special dividends between August 2022 and September 2023. Expect these special dividends to continue in 2024.

With a solid balance sheet and just a little help from natural gas prices, investors can expect more special dividends going forward.

So, are Canadian oil companies and Canadian pipeline stocks still worth it today?

In short, yes, they are. There are numerous options for Canadian energy companies with a strong focus on oil.

Although we are expected to hit peak demand by 2030, according to some experts, as the transition to renewable energy companies continues, we will still produce the commodity for the foreseeable future.

With this, we will need oil companies to produce the commodity and pipelines to ship it.

As such, you'll see a mix of Canadian pipeline and oil stocks, and our winner on this list is a Canadian natural gas producer.

These oil stocks are still trading at discounts because of the current volatility in oil. They're also still facing significant volatility themselves as producers. If you're new to buying stocks, volatility is simply the overall velocity of the movements in a stock's price.