2 Cheap TSX Stocks to Buy in February 2024

Undervalued, dividend-paying TSX stocks, such as Suncor Energy, have the potential to deliver outsized gains to shareholders in 2024.

| More on:

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%.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Whitecap Resources. The Motley Fool has a disclosure policy.

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 »