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Oil prices have fallen from their March highs due to an inverted yield curve. This has led to increased fear of recession. Analysts expect WTI crude oil to trade at US$100/barrel throughout the year, despite growing energy demand and constraints. The equity markets are expected to remain volatile so investors can invest in the following energy stocks for passive income and portfolio strengthening.
My first choice would be Enbridge (TSX.ENB) (NYSE.ENB), which has maintained its dividend increase even during the pandemic. Due to its highly contracted business, commodity price fluctuations won’t have any impact on the company cash flows. The stable cash flow will allow it to continue paying dividends without interruption since 1955. In addition, the company’s quarterly dividend was increased at a more than 10% CAGR over the past 27 year. Meanwhile, the company’s forward dividend yield currently stands at an attractive 6.19%.
Enbridge plans to invest between $5 and $6 billion each year over the next three-years to increase its midstream assets and renewable energy assets. Given these investments and solid underlying business, the company’s management expects its distributable cash flows to grow at a CAGR of 5-7% through 2024. The company has liquidity of $5.3 Billion, which I consider a strong foundation for its growth plans.
Amid the recent pullback, Enbridge has lost around 7% of its stock value compared to its last month’s highs. It is a good buy because its price-to earnings ratio has dropped to 18.1 over the next twelve months (NTM).
Suncor Energy The company’s dividends have increased twice in the past 12 months (TSX:SU, NYSE:SU). Higher oil prices have driven the company’s financials, allowing it to raise its dividends. With a quarterly dividend of $0.47/share, the company’s forward yield stands at a healthy 4.58%.
The company has low-declining, long-life assets that allow it to break even if WTI crude oil trades at US$35/barrel. Suncor Energy is expected to deliver solid results in the next quarters, with oil prices hovering at around US$100/barrel. Its financial performance could be boosted by increased production, cost-cutting efforts, lower interest expenses, and a fall in debt.
Suncor Energy’s solid returns of more than 32% this year are still impressive, trading at a NTM multiple of 4.1. This makes Suncor Energy an excellent investment in this volatile environment.
My last choice would be TC Energy (TSX.TRP), (NYSE:TRP), which has increased its dividends at an average CAGR of 7.7% over the last 22 years. The company generates approximately 95% of its adjusted EBITDA through regulated assets and long-term contracts. This provides stability for its cash flows, which allows it to increase dividends in a consistent manner.
Enbridge continues to make progress with its $25 billion secured capital plan and expects to deliver $6.5 million in projects by 2022. The company’s financials could be impacted by rising energy demand. Looking forward, the company’s management expects its adjusted EBITDA to grow at a CAGR of 5% through 2026, given its solid underlying business and capital investments.
The management expects to increase its dividend by 3%-5% in the future due to higher cash flows. At 5.28%, the forward dividend yield stands. The company valuation is attractive with its NTM Price-to-Earnings Multiple standing at 16.