Oil and gas stocks have entered bear market territory not seen since earlier this decade. As oil stocks continue to fall, dividend yields are becoming higher and valuations are getting cheaper. This has left Canadian investors with a huge opportunity to enter a sector which will inevitably recover. When that happens is anyone’s guess, but petrochemicals will still be used for the foreseeable future as the transition to greener, more reliable forms of energy is still in its infancy.
Dividend stocks typically hold up a little better in sub-par market conditions. This is mostly due to the fact that as a stock’s price falls, its dividend gets higher and it becomes more attractive to income investors. They buy, thus creating somewhat of a cushion in the stock’s price.
Unfortunately (or fortunately for you) this isn’t happening in the oil and gas sector. On this list of the top oil and gas stocks to buy in Canada, you’ll see a lot of oil stocks right now that are providing better than average dividends to go along with extremely low valuations.
If you’re a patient investor, this list of oil and gas stocks is exactly what you need to provide outsized returns when the inevitable recovery of the industry comes around. If you like what you see with this list of oi land gas stocks, feel free to check out our other top stock lists:
Top Gold Stocks
Top Canadian Dividend Stocks
Best Stocks To Buy In Canada For Growth
Best Canadian Bank Stocks
Top Canadian Marijuana Stocks
The Best Lithium Mining Stocks
Canadian Tech Stocks
Top Canadian Lumber Stocks
Top Canadian ETFs
Canadian Oil Companies To Buy Right Now
7. Tourmaline Oil (TOU.TO)
Tourmaline Oil (TSX:TOU) is an oil and gas exploration and production company. With assets in the Alberta Deep Basin, Northeast British Columbia Montney and Peace River Triassic Oil Complex, Tourmaline is mainly situated in Western Canada.
Tourmaline has a very large and probable reserve of 140%, which will allow it to expand at a low cost. The company has one of the largest land profiles at over 1.8 million acres, making it the third largest of any oil and gas producer here in Canada. Tourmaline plans to drive significant organic growth in the future and is in a prime position to do so, as most of this growth will be funded by internal cash flows.
As with most oil and gas companies, Tourmaline is trading at a deep discount. One of the highest growth potential oil and gas stocks on this list, analysts figure Tourmaline could run up 76% higher than today’s price with a 1-year target estimate of $23.38.
I tend to believe them and think the oil and gas producer could even go higher, as it is only trading at 14.6 times forward earnings and 0.56 times book value. Along with this high potential growth, the company offers a 3% dividend yield with a payout ratio under 30%. The company is expected to grow at a rate of 17% annually over the next 5 years and analysts are extremely bullish on the stock, with 11 rating it a “buy” and only 1 rating it a “hold.”
Mkt Cap: $4.3 Billion
52-Week Gains: -9.78%
Fwd P/E: 14.60
1Yr Price Target: $23.38
6. Whitecap Resources (WCP.TO)
Whitecap Resources (TSX:WCP) is a domestic oil and gas producer.
It has assets across Western Canada in some of the richest basins in the country. It has production assets in British Columbia, Alberta and Saskatchewan and is currently a very attractive opportunity for income investors. Whitecap currently plays a dividend of 6.33%. The company’s payout ratio is extremely high, coming in at over 800%. Most income investors have looked at the oil and gas company and avoided it due to its high dividend yield and payout ratio.
However, recently the company’s CEO has come out and said they have no plans to cut the dividend. In fact, they plan to increase it moving forward. Whitecap has been continually increasing production. In fact, the company has achieved a compound annual growth rate of 12% in terms of production over the last decade.
Along with strong production numbers, the company is also actively paying down debt, and this will help prevent dividend cuts as well. The company reduced its debt down to 1.4 times funds flow by the end of 2019 and plans to pay back an additional $100 million in 2020. Analysts have a 1-year price target of $7.25 on the junior oil and gas company, which still signals a 34% potential return over the next year. That’s even after the stock’s strong move to begin 2020.
If you can handle the volatility the oil and gas sector will bring on its road to recovery, then Whitecap may be worth the risk.
Mkt Cap: $2.21 Billion
52-Week Gains: 24.75%
Fwd P/E: 15
1Yr Price Target: $7.25
5. Enbridge (ENB.TO)
A top oil and gas stock list wouldn’t be complete without one of Canada’s most popular stocks, Enbridge (TSX:ENB). A Canadian Dividend Aristocrat, Enbridge sports one of the best dividends in the country.
Enbridge is a multinational energy services company, and is involved in the transportation, distribution and generation of energy in North America. It owns the largest natural gas distribution network in Canada and the longest crude oil and liquid hydrocarbons transportation system in North America.
Enbridge has been actively looking to reduce its debt as of late. The company is selling off non-core assets to reduce its current debt levels. Just recently, the company received $5.7 billion in asset sales. Most investors know Enbridge as one of the most reliable and strongest dividend payers in the country.
With a yield of 6.21%, one that only uses up approximately 65% of operating cash flows, it provides oil and gas investors with an amazing dividend. Enbridge’s payout ratio may look high at 112%, but with a dividend growth streak of 23 years, I’m not worried at all about a cut. Besides, with various non-cash charges eating into net income, the more accurate view of the dividend comes from comparing the payout to cash flow.
In fact, Enbridge has been growing dividends at a rapid pace, with the company more than doubling its payout since 2014. The oil and gas stock isn’t cheap, but it isn’t outlandish either. Trading at 20 times forward earnings, 1.71 times book value and a PEG ratio of 2.23, these are the types of valuation metrics you typically see from a company that pays such a high yield.
Mkt Cap: $105.6 billion
52-Week Gains: +19.81%
Fwd P/E: 20.06
1Yr Price Target: $55.20
4. Pembina Pipeline Corp (PPL.TO)
Pembina Pipeline (TSX:PPL) specializes in transportation and midstream services for the energy industry in North America.
The company has over 10,000 kilometers of pipeline networks that extend across Alberta, British Columbia Saskatchewan and North Dakota. Our top 5 oil and gas stocks below are mostly growth plays, with the oil and gas sector being hit as hard as it is right now. But with Pembina, the primary reason for investment has always been its rock-solid dividend.
The company pays a 5.03% dividend yield and has increased dividends for 8 straight years. It’s also a rare Canadian monthly dividend stock. Its 5-year dividend growth rate of only 6% isn’t anything to write home about, but the better the dividend yields you initially, the less you need to see it grow.
The company’s payout ratio sits at just over 81%, but I don’t see Pembina cutting dividends anytime soon, especially with the pipeline situations in Western Canada slowly getting resolved. Pembina is probably known best for its execution of projects. The company is notoriously on time and on budget.
Pembina currently trades at a premium, as most high dividend paying stocks do with a forward price to earnings of over 20 and a 5 year PEG of over 2, but analysts figure the company will grow at a rate of nearly 10% annually over the next 5 years. 10% annual growth, a 5% dividend yield and a 1-year price target that signals approximately 11% upside are three of the primary reasons to take a look at this oil and gas pipeline company.
Pembina is dual-listed, meaning it also trades on American exchanges. Be careful not to accidentally purchase the U.S. version, or you could pay a bunch in fees. Or, if you plan on purchasing it, use this popular investment strategy to save on fees.
Mkt Cap: $27.4 billion
52-Week Gains: +20.88%
Fwd P/E: 20.20
1Yr Price Target: $56.88
3. Encana (ECA.TO)
Encana (TSX:ECA) engages in the exploration, development, production and marketing of natural gas, oil and natural gas liquids.
The company holds assets in Canada, the United States and Mexico. Encana is third on this list simply due to market overreactions, and I would consider it the cheapest Canadian oil and gas stock by a landslide. With a 52-week high of $10.36, Encana has lost nearly 50% of its value as it now trades just below $6 a share.
Why the drop off? Well, we can attribute some of it to a struggling oil and gas industry. But Encana is one of the only oil and gas stocks to face this significant of a loss. One analyst thinks shares will be over 150% higher a year from now, and figure Encana will grow over 45% annually over the next 5 years.
Encana has realized its price is at significant lows, and it is buying back shares hand over fist. The company just recently initiated a $1.25 billion repurchase program and has said that it continues to buy back more shares in the future, all funded internally. The company posted losses in 2015 and 2016 but has returned to profitability the last 2 years and has reported earnings of $1.65 per share in the last 12 months.
Mkt Cap: $7.38 Billion
52-Week Gains: -36.60%
Fwd P/E: 7.89
1Yr Price Target: $8.95
2. Suncor Energy (SU.TO)
Suncor Energy (TSX:SU) Suncor Energy is an integrated oil and gas company that focuses on three key segments: Refining and Marketing, Oil Sands and Exploration and Production.
Suncor is the largest energy company in Canada in terms of revenue. Because they have an integrated business model, the company is better positioned to reap the rewards from higher WTI and Brent pricing by shipping its product to its own refineries in the throughout Canada and the United States. Suncor provides one of the better dividends in the oil and gas industry, yielding 3.75% at the time of writing.
The dividend is rock solid as well, using up only 53% of the company’s trailing earnings. Having raised dividends for 17 straight years, you can expect further dividend growth from this oil and gas giant. Its 5-year dividend growth rate is one of the best in the sector as well.
Suncor recently raised its dividend by 16%, which beats its 5-year annual dividend growth rate of 14%. Suncor is expected to grow at a rate of 9.52% annually over the next 5 years, and the company is trading at very fair valuations.
With forward price to earnings of only 15.44 and trading at 1.43 times book value, Suncor is a bargain. At today’s prices, analysts figure there is more than 20% upside. However, I feel this is on the low side.
Mkt Cap: $61.91 Billion
52-Week Gains: +4.41%
Fwd P/E: 13.16
1Yr Price Target: $51.17
1. Canadian Natural Resources (CNQ.TO)
Canadian Natural Resources (TSX:CNQ) is an independent crude oil and natural gas exploration, development and production company.
The company operates in its Exploration and Production, Oil Sands Mining and Upgrade and Midstream segments. Canadian Natural is one of the largest energy producers in the country and has been taking advantage of the downturn to buy up cheap oil sands assets at a frantic pace.
In 2017, the company purchased Shell’s Canadian oilsands assets and in 2019 it purchased all of Devon Energy’s North American oilsands assets. It’s well positioned to benefit when the sector turns back around. Canadian Natural prides itself in being a low-cost producer with a balanced and diversified product base.
The company has always been a strong generator of significant cash flows, backed by its free cash flow of more than $6 billion posted in 2019. Free cash flow should hit $8 billion in 2020, or approximately $7 per share.
The company has 1-year upside potential of nearly 11%, which is nice upside potential when combined with the stock’s 3.66% yield. Canadian Natural is currently trading at a deep discount. In fact, most all oil and gas stocks are. However, to have this major of a player in the industry at such attractive price levels is a huge gift to those looking to grab oil and gas stocks on the cheap.
The company is trading at only 15.21 times forward earnings, 1.41 times book value and has a P/E to growth (PEG) ratio of just over 1. The Company has raised dividends for 18 straight years and has a 5 year dividend growth rate of over 18%.
Couple this with the fact that Canadian Natural’s dividend accounts for less than half its free cash flow, and it makes them our top Canadian oil and gas stock to buy in 2020.
Mkt Cap: $49.01 billion
52-Week Gains: +18.83%
Fwd P/E: 15.21
1Yr Price Target: $45.25