Energy is back as TSX's top-performing sector. As of August 15, 2024, the year to date is up 15.07% year to date versus the broad market's 6.45%. Investors taking positions in the sector could earn two ways: dividends and capital gains.
However, if you want sure winners, Imperial Oil (TSX:IMO) and Keyera (TSX:KEY) are the energy stocks to buy hand over fist this August. Besides their market-beating returns, both are dividend growers.
Industry powerhouse
Imperial Oil doesn't pay the highest dividend, but its 28 consecutive years of dividend increases is an incredible feat. At $99.36 per share, current investors are up 33.41% on top of the decent 2.42% dividend yield. The $53.24 billion petroleum company is one of Canada's largest integrated oil companies.
American oil giant Exxon Mobil has a 69.6% ownership stake in this Canadian energy powerhouse. Its Dividend Aristocrat status makes it a popular choice among risk-averse, income-focused investors. The 144-year-old company is still evolving and adopting to ever-changing market conditions, including automation and digitalization.
Imperial Oil endured the oil slump, price volatility, and the COVID-19 pandemic in 2020. The massive headwinds did not deter management from keeping investors whole on its dividend commitment. The company cut costs, reduced capital expenditures, and prioritized high-return projects.
Fast forward to 2024, and the financial position remains strong. In the second quarter (Q2) of 2024, net income and cash flow from operating activities climbed 67.85% and 84% to $1.13 billion and $1.63 billion, respectively, compared to Q2 2023. In the first half of the year (six months ended June 30, 2024), net income rose 21% to $2.33 billion from a year ago.
Brad Corson, chairman, president, and chief executive officer (CEO) of Imperial Oil, credits the strong business operations and completion of several major turnarounds for the impressive quarterly results. Given its solid balance sheet, strong cash position, and low debt, Imperial Oil is well-positioned to continue its strong performance for years. Market analysts' high price target in 12 months is $115 (+15.74%).
Dividend-growth company
Keyera closely follows Imperial Oil with its +25.59% year to date. The energy stock also outperforms its pipeline peers, Enbridge and TC Energy. At $39.12 per share, you can partake in the lucrative 5.23% dividend. Because of strong cash flows and solid marketing results in Q2 2024, the board approved a 4% dividend hike.
In the three months ended June 30, 2024, net earnings declined 10.55% to $142.2 million versus Q2 2024, while cash from operating activities increased 17% year over year to $272.85 million. According to Dean Setoguchi, Keyera's president and CEO, disciplined execution of the business strategy resulted in fee-for-service cash flow growth. He added that it should enable sustainable dividend growth.
Setoguchi expects strong free cash flow (FCF) generation in 2024 since Keyera has entered the lower capital spending phase. Moreover, the 6-7% compound annual growth rate target for adjusted earnings before interest, taxes, depreciation, and amortization from 2022 to 2025 is highly achievable.
Sustained passive income
Imperial Oil or Keyera will not disappoint if you seek sustained, uninterrupted passive-income streams. The price appreciation is a bonus.