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With the Bank of Canada having cut its benchmark interest rates twice this year and another cut expected, dividend stocks have become increasingly appealing for those seeking stable income sources. In this context, let's examine two dividend stocks that have the potential to enhance passive income streams.
Canadian Natural Resources
Canadian Natural Resources (TSX:CNQ) is a prominent oil and natural gas producer with operations in Western Canada, the North Sea, and Offshore Africa. The company's extensive reserves and diversified asset base have enabled it to maintain consistent cash flows, contributing to 24 consecutive years of dividend increases, with an annualized growth rate of 21%. Currently, CNQ pays a quarterly dividend of $0.525 per share, with a forward dividend yield of 4.2%.
Recently, CNQ’s stock price has declined by 11.7% from its 52-week high, largely due to a cooling of oil prices since April. This pullback has made CNQ’s valuation more attractive, with the stock trading at a next 12 months (NTM) price-to-earnings ratio of 12.7. Additionally, the International Energy Agency forecasts a rise in oil demand by 3.2 million barrels per day compared to 2023 levels, barring significant policy changes. This expected increase in demand could support higher oil prices.
CNQ has also announced a capital investment plan of $5.4 billion for this year to boost production. Enhanced production capacity combined with potential rises in oil prices could strengthen CNQ’s financial outlook. With its debt now below the $10 billion target, CNQ plans to return 100% of its free cash flows to shareholders, which may further secure future dividend distributions.
Northland Power
Northland Power (TSX:NPI) specializes in developing, owning, and operating clean energy facilities across Asia, Europe, and America. The company reported a solid second quarter, with revenues and adjusted EBITDA increasing by 12.1% and 15.5%, respectively. Strong wind resources offset a decline in revenue from its Canadian solar facilities, contributing to this financial performance.
NPI is currently advancing the construction of two offshore projects in Taiwan and Poland, along with an energy storage project in Canada. The management anticipates completing these projects within the next few years. With these developments, NPI expects its adjusted EBITDA to grow annually by 7-10% through 2027. The company also has a developmental pipeline totaling 9 gigawatts, signaling healthy long-term growth prospects and potentially securing future dividend payouts.
Presently, NPI offers a monthly dividend of $0.10 per share, with a forward yield of 5.4%. The stock’s valuation is also favorable, with an NTM price-to-earnings ratio of 14.3.
