The S&P/TSX Composite Index is up 4.15 per cent year to date, close to its all-time high. Bull markets are good news for investors, as it is absolutely exhilarating to see the value of their holdings increase.
However, when the stock market is soaring, finding undervalued stocks trading at discounted valuations is a big challenge.
The good news is that there are still some great opportunities to buy low and capture high-yielding dividends and capital gains in the Canadian energy sector, especially through the following three stocks.
Multinational pipeline and energy giant Enbridge (TSX:ENB) is one of the favourite dividend stocks for Canadian investors, with a current market cap of C$102.79 billion, and is based in Calgary. The company owns one of the most complex and extensive energy pipeline networks in the world. A large portion of the hydrocarbons produced and consumed in North America are transported through it.
It is worth pointing out that the majority of Enbridge’s earnings before interest, taxes, depreciation and amortisation (EBITDA) is dependent on long-term contracts that are indexed to inflation, ensuring that its cash flow is not affected by fluctuations in commodity prices.
Thanks to its stable cash flow, the company’s dividend has grown at a rate of 10% per annum over the past 29 years. The company’s current share price is C$48.36 and it currently pays investors a dividend yield of 7.57 per cent.
TC Energy (TSX:TRP) is another Calgary-based energy pipeline company with a current market capitalization of C$56.31 billion that owns and develops energy infrastructure networks in Canada, the U.S., and Mexico.
During the fourth quarter of fiscal year 2023, the company reported 4.8% year-over-year growth in revenues, and a 15.8% increase in earnings before interest, taxes, depreciation, and amortisation (EBITDA).
Despite the challenging macro environment, the company has beaten analysts’ earnings estimates for eight consecutive quarters, outperforming the broader market. On Tuesday (March 12), the company’s shares were trading at C$54.28 per share, paying investors a dividend yield of 7.07 per cent.
Canadian Natural Resources (TSX:CNQ) also belongs to the energy sector, but unlike Enbridge and TC Energy, the C$103.63 billion market cap company is a producer, primarily of oil and natural gas in the western provinces of Canada.
The stock’s ability to outperform the broader market over the years, coupled with a generous dividend, has made Canadian Natural Resources one of the most sought-after long-term holdings for Canadian investors.
The energy stock last traded at C$96.72 and has a dividend yield of 4.34 per cent. The company has paid dividends to investors for the past 24 consecutive years and has an attractive dividend compound annual growth rate (CAGR) of 21%. Its high-value reserves compared to other energy producers, combined with a low debt-to-adjusted capital flow ratio, making it a relatively safe long-term investment in a self-directed portfolio.
It is too early to say whether the current rally will be a sustained bull market. While the market may see more pullbacks, analysts expect value stocks to soar this year.
Whether it’s Enbridge, TC Energy or Canadian Natural Resources, the dividend yield and capital gains outlook now warrants investors to consider buying.
