Even though Canadian energy stocks have vastly outperformed in 2022, they have been turbulent as of late. Just in the past month, the S&P/TSX Capped Energy Index has declined more than 6%. That is compared to the S&P/TSX Composite Index, which is up 3.8%.
There are reasons to be optimistic about Canadian energy stocks
There are reasons to be optimistic about Canadian energy stocks. They are in great operational and financial condition. With oil trading over US$80 per barrel, they are still generating significantly more cash than they need to operate or grow. That means debt is quickly declining, profits are rising, and excess cash is being returned to shareholders.
Likewise, Canadian oil stocks are dirt cheap. You can find some of the top Canadian oil and gas producers trading for less than six times earnings.
The war in Ukraine certainly makes energy security a global issue. Energy supply is just not keeping up with demand. Consequently, oil demand could outpace supply and keep prices elevated for years. Given this dynamic, Canadian energy stocks are an intriguing place for value and dividends right now.
A large-cap, dividend-growth machine
One large-cap stock that is suitable for any dividend-loving, Canadian investor is Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ). Despite being a commodity-centric business, it is exceptionally well run. It can generate free cash flow and pay its dividend with oil as low as US$35 per barrel.
Already in 2022, this Canadian energy stock delivered $2.4 billion of dividends to shareholders. It bought back around $4 billion worth of stock. This year, it’s already raised its quarterly dividend by 28%. This quarter, it announced a special dividend worth $1.50.
Combine its regular and special dividends and CNQ stock is yielding close to 7% today. For one of Canadaâs best-run businesses with a long history of dividend growth, this Canadian energy stock looks like a bargain with such a high yield.
A mid-cap Canadian gas stock
For a mid-cap way to play Canadian energy stocks, Arc Resources (TSX:ARX) should be on your radar. With 340,000 barrels of oil and gas in production, it is one of Canadaâs largest natural gas producers. It just announced second-quarter results and it generated $677 million of excess discretionary cash.
It distributed nearly 60% ($406 million) of that excess cash in dividends and significant share buybacks. Since late 2021, it has eaten up nearly 9% of its total share count!
Last quarter, it increased its quarterly dividend by 20%. Today, ARC stock yields 2.5%, but given its fast-improving financial profile, its dividend will certainly keep growing going ahead.
A small-cap Canadian energy stock
Tamarack Valley Energy (TSX:TVE) is my small-cap Canadian energy stock for consideration. It produces over 40,000 barrels of oil/gas in extremely profitable plays in Alberta. In its recent second quarter, it generated $94 million of free funds flow. It also increased its monthly dividend by 20% to $0.01 per share.
Today, Tamarack Valley stock yields 2.82%. As the company reduces its debt target to $400 million, it plans to return 50% of its free funds flow back to shareholders. That will come in an attractive combination of potential special dividends and share buybacks.
Tamarack is insanely cheap at five times earnings today. If oil remains elevated, shareholders will be amply rewarded with cash and capital returns in the future.
The post 3 Canadian Energy Stocks With Incredibly Fast-Growing Dividends appeared first on The Motley Fool Canada.
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Fool contributor Robin Brown has positions in ARC RESOURCES LTD. and Tamarack Valley Energy Ltd. The Motley Fool recommends CDN NATURAL RES.