2 Top Canadian Energy Stocks to Own in 2022

Energy stocks could see more gains when the Q1 results start to emerge.

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Energy stocks are on a roll in 2022, and more gains could be on the way for Canada’s top oil and gas producers.

Suncor

Suncor (TSX:SU)(NYSE:SU) used to be the go-to pick in the Canadian oil sector for investors who wanted reliable and growing dividends and a stock that would hold up better than its pure-play peers when oil prices went through a downturn.

The integrated business structure that includes oil sand production, refining, and retail segments was the reason for the preferred status. The downstream assets, which include four large refineries and roughly 1,500 Petroleum-Canada retail locations, provided a solid revenue hedge when oil prices dropped. In fact, these divisions would often benefit from the reduction in crude oil input costs and lower gas prices.

The pandemic, however, hammered all three groups at once, and that is why Suncor made the decision to cut its dividend in the early months of the downturn. Shocked investors dumped the stock, and Suncor continues to struggle to win back their confidence. This might be an opportunity for new investors who missed the broader oil rally to pick up Suncor shares while they are still undervalued.

Suncor trades near $43 per share at the time of writing compared to $44 before the pandemic. Most of the other major oil producers in Canada have seen their share prices surge way above the early 2020 levels.

Suncor did a good job of using excess cash to reduce debt and buy back stock last year. The board then raised the payout by 100% near the end of 2021 to bring it back to the 2019 level. When Suncor reports the Q1 2021 results, it wouldn’t be a surprise to see another large distribution increase. If that happens, the stock could take off.

At the time of writing, investors can pick up a 3.9% dividend yield.

Canadian Natural Resources

CNRL (TSX:CNQ)(NYSE:CNQ) has replaced Suncor at the top of the Canadian oil patch. At the time of writing, the company has a market capitalization of $99 billion compared to just $61 billion for Suncor.

CNRL operates oil and natural gas production facilities and probably has the best resource portfolio in the industry. CNRL owns oil sands, heavy conventional oil, light oil, offshore oil, natural gas liquids, and natural gas holdings along with some strategic infrastructure in key areas.

CNRL raised its dividend steadily through the pandemic, extending its dividend-growth streak to 22 years. the board recently increased the quarterly payout by 28%. That’s on top of a 38% rise in 2021. The share price is near $85 at the time of writing. It was $40 before the pandemic and as low as $12 in March 2020.

Despite the major rally, the stock still trades at just 13 times trailing 12-month earnings. The Q1 results are expected to be robust, and the stock could catch a new tailwind when the earnings get released.

At the time of writing, the dividend provides a yield of 3.55%.

The bottom line

Suncor and CNRL are leaders in the energy sector and should deliver strong total returns for investors over the medium term, as rising fuel demand and tight global supplies persist. If you have some cash to put to work, these energy stocks deserve to be on your radar.

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.

The Motley Fool recommends CDN NATURAL RES. Fool contributor Andrew Walker owns shares of Suncor.

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