As oil prices touched multi-year highs in 2022, several TSX energy stocks outpaced the broader markets last year. In fact, while the S&P 500 Index entered bear market territory, the Energy Select Sector SPDR Fund was up over 50% in 2022.
While oil prices stabilized in the first half of 2023, West Texas Intermediate crude oil prices have almost doubled in the last three years. Moreover, WTI crude oil prices have surged 20% since the start of June 2023. The price spike should drive profit margins and cash flows higher for several TSX energy stocks in the next six months.
Here are two top TSX energy stocks you can consider buying today if oil prices remain elevated.
Is Canadian Natural Resources a good buy right now?
One TSX energy stock that has crushed the broader market returns in the last two decades is Canadian Natural Resources (TSX:CNQ). Since October 2003, CNQ stock has returned 2,000% to shareholders after adjusting for dividends. Despite these outsized gains, CNQ also offers you a tasty dividend yield of 4.1%.
Despite the cyclicality associated with the energy sector, Canadian Natural Resources has raised dividends by 23% annually in the past 23 years, showcasing the resiliency of its business model.
In Q2 2023, CNQ reported adjusted funds flow of $2.7 billion and adjusted net earnings of $1.3 billion. The energy giant has distributed $4.3 billion to shareholders via dividends and share buybacks in the last two quarters despite an uncertain macroeconomy.
CNQ aims to end 2023 with a net debt of $10 billion as it continues to expand its portfolio of cash-generating assets. Its top-tier reserves and asset base provide it with unique advantages in terms of capital efficiency and balance sheet flexibility. With a payout ratio of less than 50%, CNQ has enough room to lower balance sheet debt, raise dividends, and reinvest in growth projects.
Priced at 14.5 times forward earnings, CNQ stock is quite cheap and trades at a discount of 8% to consensus price target estimates.
Is Suncor energy stock still undervalued?
Valued at a market cap of $60 billion, Suncor Energy (TSX:SU) is among the largest energy companies on the TSX. It is focused on the production of synthetic crude from oil sands and owns the largest oil sands mine in the world. The oil sands located in Alberta have massive reserves, making Suncor a solid long-term bet today.
While Suncor was forced to cut its dividend by 55% in early 2020 due to the COVID-19 pandemic, it has more than doubled these payouts in the last three years. Moreover, Suncor has raised dividends by 16% annually in the last 19 years, which is exceptional for a cyclical stock. It currently pays shareholders an annual dividend of $2.08 per share, translating to a forward yield of 4.5%.
Suncor reported free cash flow of $1.1 billion in the June quarter and paid dividends amounting to $679 million to shareholders, indicating a payout ratio of 60%. Priced at nine times forward earnings, Suncor stock trades at a discount of 10% to consensus price target estimates.
