While growth stocks have staged a strong comeback in 2023, several energy stocks have trailed the broader markets by a wide margin. In fact, falling oil prices have dragged valuations of energy stocks lower in recent months, increasing their dividend yields in the process.
Here are two quality, high-yield TSX energy stocks value investors can consider buying in February 2024.
Whitecap Resources stock
Down 52% from all-time highs, Whitecap Resources (TSX:WCP) currently offers you a dividend yield of 7%. Despite volatile oil prices in 2023, Whitecap managed to achieve its net debt milestone of $1.3 billion, and it now has the flexibility to return 75% of free funds flow to shareholders, including a base annual dividend of $0.73 per share.
Whitecap acquired XTO Energy Canada for $1.9 billion in the second half of 2022, after which it reduced net debt by more than $900 million and returned close to $450 million to investors via dividends and buybacks.
In 2024, Whitecap aims to spend between $900 million and $1.1 billion in capital expenditures, which should drive future cash flows higher. It expects production to increase by 8% year over year, and if oil prices average around US$75 per barrel, Whitecap should end the year with $1.6 billion in funds flow.
With $1.8 billion in liquidity and a debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio of 0.6 times, Whitecap has strong financials and is well equipped to navigate an economic downturn while maintaining its high dividend yield.
Whitecap closed the Viking acquisition in December 2023, adding 400 drilling locations spread over 85,000 acres. The tuck-in acquisition should be accretive to free funds flow by 8% in 2024.
Priced at less than seven times forward earnings, Whitecap stock is very cheap. Analysts remain bullish and expect the TSX energy stock to surge over 50% in the next 12 months.
Suncor Energy stock
Among the largest energy companies in Canada, Suncor Energy (TSX:SU) is valued at $56 billion by market cap. An integrated energy giant, Suncor’s operations include oil sands development, offshore oil and gas, petroleum refining, and its Petro-Canada retail and wholesale distribution networks.
Suncor is developing petroleum resources while advancing the transition to clean energy by investing in power and renewable fuels.
In the third quarter (Q3) of 2023, Suncor reported adjusted funds from operations of $3.6 billion, while adjusted operating income stood at $2 billion. It paid $676 million in dividends and allocated $300 million towards buybacks in the September quarter.
Suncor delivered total upstream production of 690,500 barrels of oil equivalent per day (boe/d), ending Q3 with a refinery utilization of 99%.
Suncor Energy pays shareholders an annual dividend of $2.18 per share, translating to a forward yield of 5%. While Suncor was forced to cut its dividends during the onset of COVID-19, its payouts have more than doubled in the last three years.
Suncor stock is priced at 8.8 times forward earnings, which is very cheap. Analysts expect Suncor stock to gain 20% in the next 12 months. After adjusting for dividends, the total returns will be closer to 25%.