Summary
- Canada’s energy sector suffered major setback due to the COVID-19 pandemic and recent oil price crash.
- After a sharp loss in mid-March, most energy stocks have recovered with the support of government stimulus and lockdown easing measures.
- As of August 2020, the energy index bounced back better than the broader TSX index from pandemic-led falls.
- Three trending and high-income energy stocks on the TSX include Enbridge Inc, Canadian Natural Resources Limited and Suncor Energy.
The COVID-19 pandemic has wreaked havoc in the energy industry, the third largest sector (by weightage) on the Toronto Stock Exchange (TSX). The TSX energy index touched historic lows in over two decades in March this year. The sector struggled with historic oil price crash and reduced commodity demands due to COVID-19 restrictions. Valuation of most energy stocks nosedived during the pandemic market crash but have since bounced back. Some of the trending and high-income energy stocks on the TSX include Enbridge Inc, Canadian Natural Resources Limited and Suncor Energy.
The S&P/TSX High Income Energy Index has declined 37.48 per cent this year. However, in the last three months, it has advanced by nearly 11 per cent, better than the broader TSX index that gained 7.1 per cent.
Energy Index vs TSX Composite Index
The energy sector has bounced back better than the broader TSX index since March, as can be seen in the table above.
But energy stocks’ comeback to pre-pandemic levels will depend on the overall Canadian economy’s recovery. The post-COVID future will also be guided by clean-tech energy, climate change, and sustainability. Energy accounted for nearly 11 percent of Canada’s GDP in 2018 and employs over 0.83 million people, official data shows.
Let us look at how three trending high-income energy stocks on the TSX – Enbridge Inc, Canadian Natural Resources and Suncor Energy:
Enbridge Inc. (TSX: ENB)
The C$ 87 billion multinational energy transportation firm ranks high among top energy stocks. It is also among the most actively traded stocks in the last 10 days, with 8.1 million 10-day average volume.
Enbridge distributed quarterly dividends of C$ 0.81 and has a high dividend yield of 7.53 per cent. Its current profit-to-earning (P/E) ratio is 45.60, price-to-book (P/B) ratio is 1.48.
Enbridge shares are currently down 16 per cent year-to-date. But it has recovered well, posting 3 per cent gains in a month.
The company’s EBITDA in the second quarter of 2020 increased by C$ 104 million year-over-year (YoY). It also generated distributable cash flow of C$ 2.4 billion or C$ 1.21 per share in a pandemic economy.
Enbridge is currently trading at C$ 43.04.
Suncor Energy (TSX: SU)
Investors seem to have turned bullish on Suncor energy stocks. It ranks third on the list of most actively traded stocks of the past 10 days, with 7.8 million 10-day average volume. Suncor is currently trading at C$ 21.92.
The energy infrastructure company distributed C$ 0.21 quarterly dividends while the yield stands at 3.83 per cent. Its current market cap is C$ 33.4 billion and P/B ratio is 0.916.
As per reports, Warren Buffett’s Berkshire Hathaway has increased it stake in the Suncor and held 19.94 million shares at the end of second quarter.
In the second quarter 2020, Suncor Energy’s finances were hit due to the market volatility and low commodity prices. It posted an operating loss of C$ 1.489 billion in Q2 2020, as compared to operating earnings of C$ 1.253 billion in the same quarter last year. Cash and cash equivalents at the end of the second quarter stood at C$ 1.8 billion.
Suncor, once viewed as blue-chip company, cut down its dividends in May 2020 amid a difficult financial quarter led by hostile oil market. Suncor has invested in LanzaJet Inc., a company working on sustainable aviation fuel and renewable diesel.
The stocks are down by 48 per cent this year but have recovered by 45 per cent since its mid-March lows.
Canadian Natural Resources Limited (TSX: CNQ)
The C$ 31-billion energy firm yields over 6.3 per cent dividend currently and distributed C$ 0.425 per share quarterly dividends. Its dividend growth stands at 13.33 per cent for three years and 12.15 per cent in five years. It has a high P/E ratio of 666.80.
The company posted net loss of C$ 310 million in second quarter of 2020, as compared to net profit of C$ 2.8 billion in the same quarter last year. This was due to the volatility in commodity prices and restrictions due to pandemic lockdown.
Canadian Natural Resources’ stock valuation dropped by 36 per cent YTD. However, on the quarterly and monthly scales, the scrips yielded 6.25 per cent and 9.3 per cent returns, respectively.
It is currently trading at C$ 26.79.
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