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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 9%), Capital Power (6.75%), and Brookfield Energy Partners (also 6.75%) 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.
Peyto Exploration and Development Company (TSX: PEY). This Alberta-based natural gas producer was first recommended in December 2022 at $13.30. It is currently trading at $15.19 and pays a monthly dividend of $0.11 ($1.32 a year) to yield 8.6%. The company reported earnings of $239 million ($1.62 per diluted share) in 2023.
Freehold Royalties Ltd. (TSX: FRU). 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 $13.40. The monthly dividend is $0.09 a share ($1.08 a year) for a yield of 8.1%. The company reported funds from operations per share of $1.59 in 2023.
Canadian Natural Resources (TSX: CNQ). 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 $103.55. So, investors who bought at the time of our original recommendation have a capital gain of 173% plus they’re receiving quarterly dividends of $1.05 ($4.20 a year). That’s a current yield of 3.72%. Those who bought when CNQ was first recommended have a yield of 11.1%.
Keyera Corp. (TSX: KEY). 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 $36.04. The quarterly dividend is $0.50 ($2 a year) to yield 5.49%. The company reported basic net earnings per share of $1.85 in 2023 and distributable cash flow of $3.73 per share.
Gibson Energy (TSX: GEI). 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 at close to the same level now. The dividend was increased by 5% this month to $0.41 per quarter ($1.64 a year) to yield 7.07%. The company reported a dividend payout ratio of 61% 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 one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.
Follow Gordon Pape on X at X.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.
Notes and Disclaimer
Content © 2024 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.
Image: iStock.com/blacklionder
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