2 Top Canadian Energy Stocks for Your TFSA Retirement Portfolio

Canadian Natural Resources Limited (TSX:CNQ) (NYSE:CNQ) and Suncor Energy Inc. (TSX:SU) (NYSE:SU) deserve to be on your radar today.

| More on:

A recovery in the oil sector has investors wondering if they should boost exposure to energy stocks inside their TFSA retirement funds.

Let’s take at look at the state of the oil market, as well as two of Canada’s top players in the industry, to see where things stand.

Oil rally

Last week, OPEC decided to increase output by a lower amount than expected, sparking an oil price surge of more than $3 per barrel. This adds to a 12-month rally that has seen the price of West Texas Intermediate (WTI) oil rise from US$43 a year ago to the current price of close to US$70 per barrel, and more gains could be on the way.

Why?

OPEC initially announced supply restrictions in November 2016 with the aim of removing surplus oil from the market to help boost prices. The efforts looked like they were failing at this point last year, amid reports of certain members not meeting their reduction requirements and U.S. production growth offsetting part of the cuts.

However, a strong global economy and unexpected production shutdowns in Angola, Venezuela, and Libya have since provided a boost to the oil market.

Analysts say excess production capacity is limited, and the market could find itself short as early as the fourth quarter of this year. Iran’s contributions to the market are expected to drop by as much as 30% due to new sanctions, and Venezuela’s production issues caused by a major economic crisis are expected to continue.

OPEC’s intended production increase is simply designed to return supply to the original target.

If demand remains robust and further outages occur, some pundits are suggesting that WTI oil could hit US$80 per barrel by the end of the year.

Which stocks should you buy?

Oil bulls might want to consider new positions in the sector before the rally takes off. However, many producers remain burdened with heavy debt, and continue to carry risk, especially if the market decides to reverse course. As such, it might be better for investors to go with larger names with strong balance sheets and diversified assets.

Canadian Natural Resources Limited (TSX:CNQ)(NYSE:CNQ) and Suncor Energy Inc. (TSX:SU)(NYSE:SU) should be attractive picks today.

CNRL owns oil sands, conventional oil, and natural gas assets in Canada, the North Sea and offshore Africa. The company is very good at allocating capital to the highest-return properties as market prices shift and continues to grow through strategic acquisitions and organic developments. Earlier this year, CNRL raised its dividend by 22%. The current payout provides a yield of 3%.

Suncor is Canada’s largest integrated oil company with oil sands, refining, and retail operations. As with CNRL, takeovers and internal development projects are boosting reserves and production. Suncor raised its 2018 dividend by 12.5%, and investors should see cash flow available for distributions increase as production ramps up at the recently completed Fort Hills and Hebron facilities. Suncor’s dividend yields 2.7%.

The bottom line

Oil prices can be volatile, and while the near-term trend suggests more upside, investors should be careful where they allocate their energy sector funds. CNRL and Suncor are both market leaders with the ability to ride out a downturn, while offering strong dividend growth amid challenging market conditions.

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 Andrew Walker has no position in any stock mentioned.

More on Dividend Stocks

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

Middle aged man drinks coffee
Dividend Stocks

Here’s the Average TFSA Balance at Age 35 in Canada

At age 35, it might not seem like you need to be thinking about your future cash flow. But ideally,…

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

How to Invest Your $7,000 TFSA Contribution in 2024

Here's how I would prioritize a $7,000 TFSA contribution for growth and income.

Read more »

a man relaxes with his feet on a pile of books
Dividend Stocks

CPP Pensioners: Watch for These Important Updates

The CPP is an excellent tool for retirees, but be sure to stay on top of important updates like these.

Read more »

Technology
Dividend Stocks

TFSA Investors: 3 Dividend Stocks I’d Buy and Hold Forever

These TSX dividend stocks are likely to help TFSA investors earn steady and growing passive income for decades.

Read more »

four people hold happy emoji masks
Dividend Stocks

Love Dividend Growth? Check Out These 2 Income-Boosting Stocks

National Bank of Canada (TSX:NA) and another Canadian dividend-growth stock are looking like a bargain going into December 2024.

Read more »

An investor uses a tablet
Dividend Stocks

A Dividend Giant I’d Buy Over Enbridge Stock Right Now

Enbridge stock may seem like the best of the best in terms of dividends, but honestly this one is far…

Read more »