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Energy stocks on the TSX are incredibly volatile. They have also been extremely rewarding to own in 2021 and 2022. Over the past year, the S&P/TSX Capped Energy Index is up 59%. For context, the Canadian benchmark index (the S&P/TSX Composite Index) is down -7.6% over the past year.
Over the past several years, TSX energy stocks have worked hard to improve efficiencies and right-size their balance sheets. While still dependent on the price of oil, many of these companies are significantly more resilient than even a few years ago. If oil prices are sustained above the US$80-per-barrel range, many are primed to continue earning outsized profits and cash flows.
Many oil and gas stocks are still dirt cheap, and several are now returning substantial amounts of cash to shareholders. If you are looking for TSX energy stocks that are paying fast-growing streams of income, here are three that look well positioned right now.
CNQ: An all-around top TSX energy stock
Sometimes it pays to just own the best. Canadian Natural Resources (TSX:CNQ) is one of the best-managed companies in Canada. With 1.33 million barrels of oil equivalent per day (BOE/d) of production, it is one of the largest energy producers in the country. The company produces oil with industrial efficiency. Its cost of production is in the low-$30 range.
This TSX energy stock has increased its dividend for 23 consecutive years. Over the past decade, it has raised its dividend by an 18% compounded annual rate! After its recent third quarter, it raised its quarterly dividend (a second time this year) by 13% to $0.85 per share. This is on top of a massive $1.50 per share dividend issued in late August this year.
CNQ is putting 50% of its spare cash to reduce debt and improve its balance sheet. The remaining 50% is targeted for shareholders, so chances are good more dividend increases are on their way. It pays a 4.3% dividend yield today.
TOU: Best in class for special dividends
If CNQ is a top TSX energy stock, Tourmaline Oil (TSX:TOU) should also be on that list. With 481,900 BOE/d of natural gas in production, Tourmaline is the largest natural gas producer in Canada. With essentially no net debt, Tourmaline has arguably one of the best balance sheets in the energy patch.
The company owns highly productive assets and great infrastructure to cheaply and efficiently get its gas to top markets. Tourmaline has delivered record results in 2022. Next year should be another strong year.
This energy stock only earns a small 1.27% dividend yield. However, it has paid out four special dividends collectively worth $7 per share this year. Its variable dividend yield is closer to 10% when you factor those in. Given its very strong balance sheet, special dividends are likely to keep dropping into shareholder pockets in the coming years.
The takeaway on TSX energy stocks
Canadian Natural Resources and Tourmaline Oil are best-in-class businesses in the Canadian energy patch. These TSX energy stocks have lower-risk business models. This enables them to efficiently funnel their cash flows back to shareholders in the form of dividends and share buybacks.
If you don’t mind a little more risk, you may want to look at other players for elevated dividend growth and potential higher upside. Some to consider include Cenovus Energy, Whitecap Resources, and Parex Resources.