2 Bargain High-Yield Canadian Energy Stocks for Your TFSA

Suncor Energy Inc. (TSX:SU)(NYSE:SU) and Freehold Royalties Ltd. (TSX:FRU) are great buys today, giving TFSA investors reliable high yields of 3.21% and 6.61%, respectively.

| More on:

Canadian energy stocks are still in the doghouse. But that’s not all bad news, as this weakness continues to uncover Canadian energy stocks that are trading at bargain levels and at elevated dividend yields.

Here are two that are both solid additions to your TFSA.

Freehold Royalties (TSX:FRU)

While Freehold is not a very well known Canadian energy stock, I believe it is a hidden gem in the space.

With a highly diversified list of exposure, this royalty model means that Freehold will be more sheltered from Canadian oil discounts than other Canadian energy stocks.

The royalty model also means less financial risk, stemming from the fact that operating costs are covered by the producers and Freehold receives royalties based only on their top-line results.

Freehold stock currently has a dividend yield of 6.61%, as it has been hit hard in the last year, down 40%. But is this justified?

Freehold has a low-risk business model with relatively predictable cash flows and a strong balance sheet.

Operating cash flow increased 8% in the last quarter, and the company’s free cash flow yield was above 20%.

And with a payout ratio of only 55%, investors have enjoyed dividend increases in recent times, as the company’s free cash flow generation has increased dramatically in accordance with the increase in oil prices.

Dividend payments bottomed in 2016 at $0.54 per share and have subsequently been rising since then to $0.58 in 2017 and, according to management’s forecast, $0.63 this year for an 8.6% increase in the dividend.

Freehold reports next week

Suncor Energy (TSX:SU)(NYSE:SU)

Suncor stock is a Canadian energy name that is actually pretty immune to the ills of Canadian oil pricing. This is due to the fact that it has an integrated business model, which means exposure to upstream (production) as well as downstream (refining and processing) services.

This effectively means that a large percentage of its oil production goes through its own refineries, which are exposed to Brent pricing.

On a company-specific basis, Suncor has a strong history of consistent shareholder value creation. In the last six years, the company has grown its dividends per share by a compound annual growth rate (CAGR) of 20%.

From 2012 to 2016, production increased at a CAGR of 6%, and from 2016 to 2020, management expects it to grow at a CAGR of 9%.

Suncor has spent the last few years investing in its business with the goal of increasing efficiencies and driving down costs to be increasingly profitable at lower oil prices as well as ensuring it has a good inventory of production growth opportunities.

The stock currently has a dividend yield of 3.21% and after the company raised its dividend by 12.5% earlier this year.

Suncor stock is down almost 20% from highs of this summer, and this represents a great opportunity to get into this highly profitable company, which has consistently generated shareholder value throughout its history.

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 Karen Thomas has no position in any of the stocks mentioned. Freehold Royalties is a recommendation of Dividend Investor Canada.

More on Dividend Stocks

open vault at bank
Dividend Stocks

Don’t Get Cute; Just Buy Stability: Top Defensive TSX Stocks to Buy Now

A healthy risk tolerance is essential for most investors, but many stray from the tried and tested, hoping to find…

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

TFSA Investors: Buy These 3 Stocks for $3,480 Yearly Tax-Free Income

One significant benefit of a TFSA-based dividend income is that it doesn’t weigh down your tax bill.

Read more »

Canadian dollars in a magnifying glass
Dividend Stocks

3 High-Yield Dividend Stocks That Are Screaming Buys Right Now

Are you looking for great income stocks? Here's a trio of high-yield dividend stocks that pay insane yields right now.

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Dividend Stocks

Transform a $5,000 TFSA Into a $50,000 Retirement Nest Egg

The TFSA is a powerful tool that can grow a small investment into a substantial retirement nest egg over time.

Read more »

A meter measures energy use.
Dividend Stocks

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

Fortis has increased its dividend annually for the past five decades.

Read more »

analyze data
Dividend Stocks

3 Dividend Stocks That Are Screaming Buys in November

Here are three top dividend stocks long-term investors won't want to ignore during this part of the market cycle.

Read more »

senior relaxes in hammock with e-book
Dividend Stocks

Generate $175/Month in Passive Income With a $30,000 Investment

Dividend aristocrats offer reliability, and many of them also offer generous yields. With sizable enough discounts, these yields can become…

Read more »

dividends can compound over time
Dividend Stocks

Best Dividend Stocks to Buy Now for Canadian Investors

These three stocks would be excellent additions to your portfolios, given their solid underlying businesses, consistent dividend growth, and healthy…

Read more »