Dividend Investors: Top Canadian Energy Stocks to Buy in December

• $1.8 billion in adjusted net income.
• $1.5 in earnings per share (EPS), a beat by $0.34.
• $3.8 billion in adjusted funds from operations (AFFO).
• $3.8 billion in cash from operations (CFO).
• 492,000 barrels of oil refined per day.
• $1.5 billion returned to shareholders – $750 million in buybacks and $700 million in dividends.

Although most of these metrics declined on a year-over-year basis, they did not decline by a lot, indicating that Suncor was doing a good job even amid the relatively low oil prices observed in the third quarter. That’s the mark of a resilient oil company, and a big part of why I hold a small position in Suncor stock today.

Enbridge

Enbridge Inc (TSX:ENB) is a Canadian midstream company and natural gas utility. Its main business activity is shipping oil to buyers across North America via its vast network of oil pipelines, which total 29,104 kilometres in length. The company is the number one supplier of Canadian crude to the U.S., the number one supplier of natural gas utility services to Ontario, and the largest overall midstream company in North America.

Unlike Suncor, Enbridge stock has not been doing well in the markets this year. Up 12% year to date or 17% including dividends, its price performance has been far behind that of the TSX Index. The main appeal of this stock is its dividend, which yields 5.5% at today’s prices – far above the TSX average.

Despite that fact, Enbridge is actually doing pretty well as a business this year, with revenue up 82%, EBITDA up 17%, and operating earnings up 19% year over year. There seems to be a disconnect between fundamentals and price performance here. On the flip side, the stock trades at 23 times earnings, which is a little pricier than TSX oil stocks as a group. Enbridge arguably deserves this premium because its business model isn’t as vulnerable to commodity price swings as exploration and production companies are. Still, it is pricey on a sector-relative basis.

Personally, I would be quite comfortable owning Enbridge today, though I don’t actually own it (I do own Suncor). The valuation factor is not quite in this stock’s favour in my view.

December is shaping up to be a big month for Canadian energy stocks.

Last month, oil and gas investors were treated to a welcome surprise when Suncor Energy (TSX:SU) put out an earnings release that beat EPS expectations by an impressive 30%. Even though oil prices were not high at the time, Suncor stock rallied 6.5% the day after its earnings came out, leading to improved sentiment toward Canadian energy companies as a whole.

Which brings us to today. Oil prices are not rising, but they are stable enough for Canadian oil companies to make comfortable profits. With the Organization of Petroleum Exporting Countries (OPEC) choosing to keep output stable rather than increase it, as it had been doing earlier in the year, the fundamentals are in place for oil prices to remain stable, and for Canadian oil companies to put out good earnings. In this article, I share two oil stocks that are looking good in December.

Suncor Energy

Suncor Energy is a Canadian integrated oil and gas company involved in the extraction, sale, and refining of crude oil and natural gas. One of Canada’s most diversified energy companies, it is involved in all aspects of the oil and gas supply chain (except for midstream). Its stock yields 3.8% and the dividend has increased at a rate of an 11.8% CAGR over the last five years.

Suncor Energy’s most recent earnings release was a major beat, boasting metrics such as:

• $1.8 billion in adjusted net income.
• $1.5 in earnings per share (EPS), a beat by $0.34.
• $3.8 billion in adjusted funds from operations (AFFO).
• $3.8 billion in cash from operations (CFO).
• 492,000 barrels of oil refined per day.
• $1.5 billion returned to shareholders – $750 million in buybacks and $700 million in dividends.

Although most of these metrics declined on a year-over-year basis, they did not decline by a lot, indicating that Suncor was doing a good job even amid the relatively low oil prices observed in the third quarter. That’s the mark of a resilient oil company, and a big part of why I hold a small position in Suncor stock today.

Enbridge

Enbridge Inc (TSX:ENB) is a Canadian midstream company and natural gas utility. Its main business activity is shipping oil to buyers across North America via its vast network of oil pipelines, which total 29,104 kilometres in length. The company is the number one supplier of Canadian crude to the U.S., the number one supplier of natural gas utility services to Ontario, and the largest overall midstream company in North America.

Unlike Suncor, Enbridge stock has not been doing well in the markets this year. Up 12% year to date or 17% including dividends, its price performance has been far behind that of the TSX Index. The main appeal of this stock is its dividend, which yields 5.5% at today’s prices – far above the TSX average.

Despite that fact, Enbridge is actually doing pretty well as a business this year, with revenue up 82%, EBITDA up 17%, and operating earnings up 19% year over year. There seems to be a disconnect between fundamentals and price performance here. On the flip side, the stock trades at 23 times earnings, which is a little pricier than TSX oil stocks as a group. Enbridge arguably deserves this premium because its business model isn’t as vulnerable to commodity price swings as exploration and production companies are. Still, it is pricey on a sector-relative basis.

Personally, I would be quite comfortable owning Enbridge today, though I don’t actually own it (I do own Suncor). The valuation factor is not quite in this stock’s favour in my view.

The post Dividend Investors: Top Canadian Energy Stocks to Buy in December appeared first on The Motley Fool Canada.

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More reading

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• 5.5% Dividend Yield: I’m Buying This Passive Income Stock In Bulk
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• Dividend Investors: Premier Canadian Energy Stocks to Buy in December
• The Top 3 Canadian Dividend Stocks I Think Belong in Everyone’s Portfolio

Fool contributor Andrew Button owns Suncor Energy stock. The Motley Fool recommends Enbridge. The Motley Fool has a disclosure policy.