In the short term, Canadian energy stocks tend to experience rapid fluctuations due to the unpredictable and volatile nature of energy prices. For example, the price of oil has seen significant shifts over the past six months, starting at US$72 per barrel, rising to US$86, dropping to US$73, and currently hovering in the low $80 range.
Fortunately, Canadian energy companies have adapted to better withstand this volatility in the long term. Instead of focusing on production growth, these companies are now prioritizing modest growth, maximizing cash flow, and returning capital to shareholders.
Many Canadian energy companies now boast sustainable balance sheets with modest debt levels. This has allowed them to begin returning cash to shareholders through avenues such as share buybacks, dividends, and special dividends. For investors looking for quality energy stocks to consider in July, there are three options to explore.
One such option is Pembina Pipeline, which plays a significant role in the Canadian energy industry by providing collection and egress pipelines, processing facilities, storage, and export facilities. With a well-managed business and a proven track record of growing free cash flows, Pembina offers a 5.5% dividend yield that is supported by its contracted asset base.
Another option is Tourmaline Oil, the largest producer of natural gas in Canada. Despite the volatility of natural gas prices, Tourmaline has built a resilient business model with low production and transportation costs. This has enabled the company to generate strong excess cash flows, even during periods of low natural gas prices.
Lastly, Cenovus Energy presents an attractive energy stock opportunity with its integrated energy business encompassing oil production and refining. With strong production assets and a refining business that is showing signs of improvement, Cenovus Energy is well-positioned to benefit from higher oil prices. The company is nearing its debt reduction target and plans to return excess cash to shareholders, offering a 2.7% dividend yield and potential for growth in dividends and special dividends.
