5 Energy Stocks To Consider Adding to Your Portfolio

Energy Stocks

Many energy stocks offer both strong cash flow and an attractive total return. Photo: Quang Ngoc Nguyen/Getty Images

For income investors, equity investing has become a two-edged sword.

On the plus side, many stocks are offering their best yields in years. You can fill your portfolio with shares the likes of BCE (yield 8.9 per cent), Capital Power (6.95 per cent), and Brookfield Energy Partners (6.7 per cent) and watch the dividends roll in.

Unfortunately, you’ll also see the bottom line wash out, as many high yield stocks are trading near their lowest levels since before the pandemic. After two years of watching portfolio values erode, many people are fed up – and nervous.

One solution is to add some energy stocks to your list. Many offer both strong cash flow and an attractive total return. 

I know some people don’t want to encourage fossil fuel consumption by investing in energy companies. I respect that view, but not everyone shares it. If you’re willing to include conventional energy stocks in your portfolio, here are some ideas from my Income Investor newsletter recommended list. 

Peyto Exploration and Development Company (PEY-T). This Alberta-based natural gas producer was first recommended in December 2022 at $13.30. It is currently trading at $15.50 and pays a monthly dividend of $0.11 ($1.32 a year) to yield 8.5 per cent. The company reported earnings of $239 million ($1.62 per diluted share) in 2023.

Freehold Royalties Ltd. (FRU-T). Freehold is an oil and gas royalty company with assets mainly in Western Canada, although it is expanding in the U.S. It was recommended in October 2021 at $12.10 and is now trading at $14.50. The monthly dividend is $0.09 a share ($1.08 a year) for a yield of 7.4 per cent. The company reported funds from operations per share of $1.59 in 2023.

Canadian Natural Resources (CNQ-T). This is one of the giants of Canada’s oil and gas industry. It was recommended in May 2019 at $37.96 and now trades at $106.73. So, investors who bought at the time of our original recommendation have a capital gain of 181 per cent plus they’re receiving quarterly dividends of $1.05 ($4.20 a year). That’s a current yield of 3.9 per cent. Those who bought when CNQ was first recommended have a yield of 11.1 per cent.

Keyera Corp. (KEY-T). Keyera supplies a variety of services to the natural gas industry, including transportation, storage, and marketing. It has been on our recommended list since 2004, at a split-adjusted price of $6.03. It is currently trading at $35.46. The quarterly dividend is $0.50 ($2 a year) to yield 5.6 per cent. The company reported basic net earnings per share of $1.85 in 2023 and distributable cash flow of $3.73 per share.

Gibson Energy (GEI-T). This is another mid-stream energy infrastructure company that is involved in the storage, optimization, processing, and gathering of crude oil and refined products. It was recommended in October 2021 at $23 and is trading just below that level now. The dividend was recently increased by 5 per cent to $0.41 per quarter ($1.64 a year) to yield 7.3 per cent. The company reported a dividend payout ratio of 61 per cent in 2023, based on distributable cash flow of $385.8 million. 

It’s important to note that these companies use different measures for calculating payout ratios. The gold standard is to measure dividends against net earnings, but few do that. Perhaps it’s time for the regulators to take a fresh look at reporting standards so that investors could easily compare apples with apples.

Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca.