When it comes to sectors, energy is the most useful inflation fighter. In fact it is the only sector that has delivered positive real returns across every inflationary period, looking back some 100 years of stock market history. Energy stocks also delivered incredible returns during the stagflationary period of the 1970’s and into the early 1980’s. We have entered a stagflationary enviornment and (like the 70’s show) it includes an energy and commodities price shock. While I have enjoyed some very generous total returns from our energy ETFs, I am set to harvest most of those total returns, and will start building the energy dividend portfolio.
From an RBC report …
We peg free cash flow generation (before dividends) across the Canadian majors—Canadian Natural Resources, Suncor Energy, Cenovus Energy and Imperial Oil
—at $46.0 billion in 2022 and $48.7 billion in 2023.”
The free cash flow gushers are just ridiculous. The dividends (and investors) are enriched by that free cash flow.
Here’s a Tweet thread from Larry Short that sets the table.
Yes, have a look for my “Don’t drill baby, don’t drill” reply.
You can also have a look at the quarterly update video from iA Private Wealth.
They’ve stopped drilling and now they’re filling – your brokerage account. From that very good video, Larry picks up an interesting chart from our friends at Ninepoint Partners.
You might say this is the money chart, the money shot.
Canadian energy stocks
And here is a post on Cut The Crap Investing that invited readers to consider investing in Canadian energy stocks, from October of 2020. That was about 300% ago. With even more gains available if you invested in the Ninepoint Energy Fund.
I have admitted to being late to eat my own cooking. In our accounts we have gains in the 100% to 150% range. In a TFSA account, I have sold a modest amount of shares in iShares XEG to pay our price at the pump for the next year or two. Being that I am in the semi-retirement stage with my wife being 2-5 years away from retirement, I will make that transition, selling down shares and moving the proceeds to dividend paying stocks and specialized income producing energy ETFs. That will take away the price risk for the energy producer sector. But certainly, the financial health of the sector and the companies is still very important. Only healthy companies (and sectors) delivery stable or growing dividends.
BUY ENERGY ETFS FOR FREE AT QUESTRADE
There is certainly recsssion risk, and we have already moved in a stagflationary environment. From March …
All said, I like the potential of more stable dividends in retirement over stable stock prices over the next year and beyond.
And speaking of income, check out the recent GIC hikes at EQ Bank. Yes things are getting much better for the retiree. There’s a whole bunch of GICS in the 3% to 4% range. You might embrace an EQ Bank over bonds these days. They do offer RRSP and TFSA accounts.
Building the energy dividend portfolio
Check out this post I wrote for Million Dollar Journey, investing in Canadian Dividend Energy Stocks. The readers at MDJ like their dividends, so I looked at a portfolio approach of investing in the oil and gas biggies in Canada, who usually offer some stable and growing dividends. I am in the process of updating that post. When I did some quick research, I discovered that Canadian Natural Resources, Suncor and Imperial Oil have recently increased their dividends (on average) by 85%. Tourmaline has been producing special dividend after special dividend.
- CNQ, 0.425 to 0.85 an increase of 100%
- SU, 0.21 to 0.52 an increase of 147%
- IMO, 0.22 to 0.44 an increase of 100%
- Tourmaline numbers are reported later in this post
For many, many months I have been suggesting that the oil and gas space will be the source of the greatest dividend growth in Canada. That is playing out. They are dividend gushers.
So you might build around that big energy Big 4. That is a group that has delivered some very solid and more stable total returns over the last two decades as well.
Rounding out the energy hat trick
We can add more natural gas exposure, and greater diversification. Of course none of this is advice. Here’s the greater list for consideration. Do your own additional research.
Let’s start with the big three.
Canadian Natural Resources (CNQ.TO), Suncor (SU.TO) and Imperial Oil (IMO.TO).
Note: I have added Tourmaline (TOU.TO) to round out the big 4 for Canada.
I then looked at iShares XEI High Dividend ETF for a few more generous payers. Plus, I checked in with a few of the Canadian energy enthusiasts on Twitter.
- Whitecap (WCP.TO)
- Gibson (GEI.TO)
- Peyto (PEY.TO)
- Topaz (TPZ.TO)
- Freehold Royalties (FRU.TO)
- Birchcliff (BIR.TO)
- Cardinal (CJ.TO)
- Tourmaline ((TOU.TO)
- Tamarack (TVE.TO)
- Arc Resources (ARX.TO)
- Pine Cliff (PNE.TO)
The list with dividend yield
Yields – May 2022
- Canadian Natural Resources (CNQ.TO) 3.82% (special dividends)
- Suncor (SU.TO) 4.01%
- Imperial Oil (IMO.TO) 2.12%
- Whitecap (WCP.TO) 3.54%
- Gibson (GEI.TO) 5.92%
- Peyto (PEY.TO) 4.31%
- Topaz (TPZ.TO) 4.62%
- Freehold Royalties (FRU.TO) 6.58%
- Birchcliff (BIR.TO) 0.80% (special dividends)
- Cardinal (CJ.TO) 7.48%
- Tourmaline ((TOU.TO) 1.16% (special dividends)
- Tamarack (TVE.TO) 2.18%
- Arc Resources (ARX.TO) 2.87%
- Pine Cliff (PNE.TO) 5.90%
On Seeking Alpha, I recently took a look our oil and gas dividend holdings and the recent dividend growth history. Here is Ridiculous Dividend Growth From Our Canadian Oil and Gas Stocks. Here’s one example …
I built around a core of the larger cap oil and gas plays. In early November, Canadian Natural Resources (CNQ) (CNQ.TO) increased the dividend by 13%. That was a follow up to a 27.6% increase in March. Then, throw in a special dividend of $1.50 per share that was paid in August. Yes, pleasantly outrageous.
Another one of the biggies in Canada, Suncor (SU) (SU:CA) just increased the dividend by 11%. Nice, but keep in mind this is the second raise in 2022, the previous dividend increase being 11.90%. We have a 23.80% dividend increase for 2022.
If we want to consider the Big 3 in Canada, we will also include Imperial Oil (IMO) (IMO:CA). Imperial Oil was recently upgraded at BMO as Q3 unleashes a cash bonanza. IMO offered a 29% dividend increase in late October. That was a follow up to a 25.9% increase announced March.
Add in Tourmaline …
Here’s the recent dividend history for Tourmaline.
| Announce | Pay | ||
| 2023-01-23 | 2023-02-01 | $0.20 | Special dividend |
| 2022-12-14 | 2022-12-30 | $0.25 | 11.11% |
| 2022-11-08 | 2022-11-18 | $2.25 | Special dividend |
| 2022-09-14 | 2022-09-29 | $0.225 | |
| 2022-08-04 | 2022-08-12 | $2.00 | Special dividend |
| 2022-06-14 | 2022-06-30 | $0.225 | 12.50% |
| 2022-05-11 | 2022-05-19 | $1.50 | Special dividend |
| 2022-03-14 | 2022-03-31 | $0.20 | 11.11% |
| 2022-01-24 | 2022-02-01 | $1.25 | Special dividend |
I also own Birchcliff Energy (BIR.TO) Freehold Royalties (FRU.TO), Pine Cliff Energy (PNE.TO) and Cardinal Energy (CJ.TO).
1000% dividend increase
Birchcliff doubled the dividend to 0.01 in early 2022. The dividend was doubled to 0.02 in June. I bought Birchcliff well in advance of the special dividends. The company had pre-announced their intention to reward shareholders with generous special dividends. From a recent Seeking Alpha post.
Birchcliff also declared a special cash dividend of $0.20/share and said it expects to show a cash surplus at the end of Q1 2023 after paying the dividend.
That special dividend was paid on October 28th. The week ending January 22, Birchcliff announced a 1000% dividend increase. The common dividend went from 0.02 t0 0.20. The forward yield is now near 9%.
Freehold Royalties increased its dividend by 33.3% in March and then added another increase of 12.5% in August. The yield is now near 7%.
Pine Cliff Energy introduced a dividend in June of 2022. A 20.5% dividend boost was offered in August. Another 8% boost was added to the December payment. The yield now sits at 9%.
Cardinal has a 9.4% yield and offered a 20% dividend increase in 2022.
Juicing the yield with ETFs
You might also look to the Ninepoint Energy Income Fund. That fund will invest in Canadian and U.S. energy dividend payers. Portfolio manager Eric Nuttall will also use some covered calls to boost the income. It’s possible the yield will increase to 8% over time. I like the addition of U.S. exposure. Those companies can take advantage of the higher oil prices attainable by way of the U.S. price – West Texas Intermediate.
There is also the CI Energy Giants Covered Call ETF.
You can check out Horizons Enhanced Income Energy ETF. The fees are much more favourable for HEE at 0.84% MER (management expense ratio).
The iShares energy index ETF (XEG.TO) is also bringing the dividends. Here’s 2022 …
| 2022-12-23 | 2022-12-29 | $0.114 |  -48.74% |
| 2022-09-23 | 2022-09-29 | $0.222 |  107.48% |
| 2022-06-24 | 2022-06-30 | $0.107 | 42.67% |
| 2022-03-25 | 2022-03-31 | $0.075 | 29.31% |
| 2021-12-30 | 2022-01-06 | $0.058 | 38.10% |
The energy dividend allocation
As always balance is key. Energy can be play an important role in the all-weather portfolio, but we certainly need to keep things in check. On the inflation-fighting front, the energy stocks might work in concert with gold and other commodities, commodity stocks and REITs.
Related post: The permanent portfolio.
I will be looking to have the energy dividends cover about 15% of the income kicked out by my RRSP portfolio. Pipelines are also in my core Canadian stock holdings. I also hold commodities. The portfolio offers some good inflation coverage. My wife’s accounts are all of the all-weather variety.
I certainly do not fear an inflationary environment, nor stagflation.
The portfolios hold bonds, cash and defensive stocks in case of market corrections and recessions. We also have a nice tech basket that was trimmed slightly over the last year and more.
Thanks for reading. We’ll see you in the comment section. Are there any other energy income investments that you like? Please leave a comment.
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Where is simething like the XEG ETF in all of this? Great gains for me, but I do think it’s pretty muxh topped out with less uoside potential now.
Hi Kevin, I think XEG will deliver very strong returns and very strong dividend growth over the next several years. IMHO the oil and gas energy story is still in place. We will need a lot more oil and gas over the next decade, and perhaps beyond.
I am simply taking some of the economic swings out of play. It is to be seen how successful that will be.
If you like the income slant strategy, you could hold XEG and shade in one of the covered call ETFs. Keep in mind those ETFs have some higher fees.
But it is also quite simple to buy several of the individual names.
I avoid commodities like energy in my retirement. Their volatility doesn’t play well in these years where capacity for risk is zero!
But pipes benefit with rising oil and gas prices and I think they are better energy investments in retirement.
Is this a new world for oil and gas seeing what is happening in Europe that the switch away from fossil fuels is damaging their economy? It might be! And your advice to add commodities like oil and gas may be good going forward. Perhaps a small percentage?
Dale, how will the eventual unwinding of the oil companies happen? Is it not a concern that an investor could be left with extreme capital losses if one holds on too long, waking up one morning to find your energy stocks worth zero after the market decides to exit the whole industry all at once. What is the planning for Capital preservation? It all looks wonderful right now, but it is inevitable that oil will be killed by the Climate Change politicians (not much science and engineering be done so it’s all politics). Are we hoping to time the market to get out in time ? That is not a good strategy. I am interested to read your take on this, and it might be a good topic for a full article, because I am sure many potential investors have this nagging doubt as well.
Hey Ken, energy is certainly cyclical. That said, the long term traditional energy trend is in place. There is little investment in future prouction. The green shift is not meaningful. Natural gas will be a long term play. The oil producers don’t need $100 oil, they might do very well at $50, $60, $70.
Any economic slowdown or recession will simply be a temporary hold for the sector IMHO. That will be a tremendous opportunity to add more. IMHO.
And investors should certainly be ready for any downturn, and keep their allocation at a comfortable level.
All said, I invest in the EV and battery sector as well with the BATT ETF.
Great question, thanks for that.
Hi Dale ,
Love yours posts
Just wondering what you mean by saying THE GREEN SHIFT IS NOT MEANINGFUL and also you mention a etf for this sector BATT ETF , can you maybe talk about this etf more .thanks steve