2 Best-in-Class Energy Companies to Buy Today

Suncor Energy Inc. (TSX:SU)(NYSE:SU) and TransCanada Corporation (TSX:TRP)(NYSE:TRP) are best-in-class energy investments.

| More on:
The Motley Fool

When it comes to energy stocks, Canadian investors have multiple investment options available to them. The TSX is heavily weighted towards energy, and energy companies account for approximately 18.5% of the index. Canada is a global leader with more oil and gas companies listed on the TSX and TSXV than any other exchange in the world. Suncor Energy Inc. (TSX:SU)(NYSE:SU), Canada’s largest integrated oil company, and TransCanada Corporation (TSX:TRP)(NYSE:TRP), Canada’s second-largest pipeline company are two of the most attractive energy investments.

Suncor’s primary assets are located in the Alberta oil sands, and the company owns four refineries: three in Canada and one south of the border in Colorado. It also has a footprint in the retail business with approximately 1,500 Petro-Canada branded gas stations.

Suncor is trading at a respectable price-to-book ratio of 1.57 and is trading at very attractive enterprise value (EV) to earnings before interest, taxes, depreciation, and amortization (EBITDA) of 8.06. The integrated oil and gas industry’s EV/EBIDTA average is 12.95. When compared to the industry, a lower multiple signifies that the company is undervalued.

Despite the high volatility of oil prices in recent years, Suncor has maintained its status as a Canadian dividend aristocrat. It has a 16-year dividend-growth streak, and the company expects to raise dividends in line with sustainable funds flow increases. It recently raised dividends by 12.5% and now yields 3.30%. Analysts have a median share price target of $50.50 — a 20% premium over its current share price.

TransCanada is considered a pipeline company with 58% of its revenues and 68% of its earnings coming from natural gas pipelines. Its integrated system of over 90,000 kilometres of natural gas liquids carries approximately 25% of North America’s natural gas needs.

TransCanada is attractively valued in relation to its future earnings and cash flows. The company is trading at 14.54 times its projected earnings in 2018, which is a decent valuation when compared against its high-quality asset base and expansion plans. The company has several pipeline projects underway in Mexico and, once completed, will generate approximately $540 million in EBITDA.

The pipeline is also one of the most attractive income plays on the index. Yielding a healthy 4.54%, the company is a Canadian dividend aristocrat with 18 consecutive years of growing dividends. Its growth projects are expected to fund annual dividend growth of 8-10% through 2020. Analysts have a median share price target of $70.50, which implies 30% upside from today’s share price.

Suncor and TransCanada make great cornerstone investments of any portfolio. They are suitable for TFSAs and RRSPs and will reward income investors with rising dividends for years to come. Energy companies have had mixed results as of late, and in times of uncertainty, it’s best to go long in best-in-class equities.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool Contributor Mat Litalien is long Suncor. 

More on Dividend Stocks

top TSX stocks to buy
Dividend Stocks

1 Magnificent Canadian Dividend Stock Down 14% to Hold for Decades

This dividend stock may be down by 14%, but I absolutely would see this an opportunity to buy up a…

Read more »

senior man smiles next to a light-filled window
Dividend Stocks

Want a $990 Monthly OAS Payment? Here’s What You Need to Do

Canadian seniors have a financial incentive to delay OAS payments and many ways to boost retirement income.

Read more »

coins jump into piggy bank
Dividend Stocks

A 10% Dividend Stock Paying Out Consistent Cash

This 10% dividend stock is one strong option for long-term income, but make sure you get a whole entire picture…

Read more »

analyze data
Stocks for Beginners

Young Investor? 4 Excellent Starter Stocks for Your TFSA

Looking for some excellent starter stocks for your portfolio? Here are four stocks that you will regret not buying in…

Read more »

Happy shoppers look at a cellphone.
Dividend Stocks

Must-Watch TSX Retail Stocks for 2025

Two TSX retail stocks that outperformed last year could be worth watching in 2025.

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

3 High-Yield Dividend ETFs to Buy to Generate Passive Income

Looking to make your money work harder in 2025? These 3 Canadian dividend ETFs deliver monthly passive income with yields…

Read more »

grow money, wealth build
Dividend Stocks

Should You Buy Fiera Stock for its 10% Dividend Yield?

If you're looking for a dividend stock, Fiera stock is certainly up there with its high yield. But how safe…

Read more »

hand stacks coins
Dividend Stocks

RRSP Wealth Builder: 3 Canadian Stocks for a Massive Nest Egg

A sizable RRSP requires fast-paced growers, just like the TFSA. Conservative investors seeking to consolidate risk outside RRSP should understand…

Read more »