2 oil stocks to buy as crude continues to rally
Written by Aditya Raghunath at The Motley Fool Canada
Oil prices have gained momentum this year after a dire 2020. The world’s benchmark oil, Brent, hit $ 86 a barrel earlier this month, the highest price in seven years. As several countries in Asia are in the throes of an energy crisis due to rising prices for coal and natural gas, demand for oil may further constrain global supplies in the near term.
Let’s take a look at two Canadian oil stocks that should benefit from rising commodity prices.
Canadian natural resources
One of the largest companies listed on the Toronto Stock Exchange, Canadian natural resources (TSX: CNQ) (NYSE: CNQ) acquires, produces, markets and sells crude oil, natural gas and natural gas liquids. Rising crude oil prices have meant CNQ stock has returned an excellent 147% in the past year after adjusting for dividends.
In order to cover its dividend as well as to account for the capital expenditures of the company necessary to maintain current production rates, oil prices must exceed US $ 35 / bbl. Despite a volatile macro environment and fluctuating commodity prices, Canadian Natural Resources’ track record has enabled it to grow dividends at an annual rate of 20% for the past 21 years. The stock currently offers investors a forward yield of 3.5%.
In the first two quarters of 2021, CNQ reduced its net debt by $ 3.1 billion and returned $ 1.3 billion to shareholders in the form of dividends and share buybacks. The long-term, low-falling assets of the company support a sustainable and growing dividend, as was evident during the bear market of 2020 when the company maintained its payments while several peers suspended or reduced their dividends.
In the second quarter of 2021, Canadian Natural Resources generated net income of $ 1.55 billion with adjusted cash flow of $ 3.05 billion and free cash flow of $ 1.5 billion.
Bay Street analysts covering CNQ stock expect its revenue to grow from $ 17.49 billion in 2020 to $ 22.84 billion in 2021 and to $ 23 billion in 2021. In By comparison, its adjusted earnings per share is expected to drop from $ 4.33 in 2021 to $ 4.8 in 2022. Analysts also predict the stock will gain nearly 17% in adjusted dividend yields over the next 12 months.
Another Canadian energy heavyweight expected to benefit from rising oil prices is Suncor Energy (TSX: SU) (NYSE: SU). In its recent investor presentation, Suncor unveiled a five-year plan in which the company aims to increase its profit margins, reduce its cost structure and strengthen its balance sheet by reducing its debt.
Suncor intends to reduce its economic capital by 40% and add new sources of income to mid-teens returns. The optimization phase could allow the company to improve returns to shareholders, as Suncor estimates that its dividends can grow at an annual rate of 25% through 2025. Like Canadian Natural Resources, even Suncor can maintain its breakeven point at US $ 35 / barrel, which allows it to repay its debt. and increase his finances in the process.
Over the past 12 months, Suncor shares have returned over 80% to investors in the form of dividend-adjusted earnings and analysts expect Suncor to return around 25% to shareholders over the next year. It offers investors a forward return of 3%, at the time of writing.
The post 2 oil stocks to buy as crude continues its rally appeared first on The Motley Fool Canada.
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Foolish contributor Aditya Raghunath has no position in the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.