Top Canadian Energy ETFs and Stocks
Hey Folks!
As the title suggests, there are some top Canadian energy ETFs and stocks to consider owning, especially as some higher oil and gas prices stick around…
This post is a follow-up to a few recent reader questions and emails after my Top-5 Stocks post was published about what I/we own, why and how I’ve added / or considered adding more energy assets to my portfolio since the pandemic.
Read on!
Top Canadian Energy ETFs and Stocks
As fears about yet another COVID-19 pandemic wave taper, a bit, I wanted to respond to a few reader questions, comments and emails related to the oil and gas boom of late.
By no means is any information enclosed, a recommendation for purchase (far from it) but backing up a bit, I will remind readers about my headspace a few years ago:
- The pandemic would eventually end.
- Our world would be different for it, and
- There may be a much higher energy demand as an outcome.
In fact, I co-wrote 5 stocks to consider for post-pandemic results here:
Historically, two sectors tend to dominate our domestic economic prosperity:
- Canadian financials
- Canadian energy.
Here is a snapshot from the iShares TSX 60 ETF for sector weights:
Source: iShares.
Since the start of the pandemic, I was thinking energy unto itself was unfairly hammered and a rebound could occur.
Well, we’re seeing that wave now and it’s much bigger than I thought?!
In support of that theme, here are some of the top oil and gas ETFs to consider if you don’t want to invest in individual stocks. I will list of few personal individual stock favourites I own later on.
iShares S&P TSX Capped Energy Index ETF (XEG)
XEG provides some great Canadian oil and gas (O&G) exposure without the worry of stock selection, albeit because it is cap-weighted / capped index so there is a strong bias to a few top companies based on market cap. At the time of this post, XEG has 30 holdings but major players in this sector like Canadian Natural Resources (CNQ) and Suncor (SU) make up around half of the fund. A reminder from this capped index fund, CNQ nor SU nor any other stock can account for more than 25% of the index sustained over time.
XEG has performed well over the last year but a reminder this fund is cyclical and was no match for the broader returns of XIU – one of my favourite ETFs to own for low-cost investing in Canada/my benchmark.
I’ll put a chart together about that below. 🙂
BMO Equal Weight Oil & Gas Index ETF (ZEO)
Given there are multiple subindustries within oil and gas, ZEO does a better job by design than XEG does for including those industries in more equal weights. This may or may not yield better long term returns of course but it will also not expose investors to one subindustry over another – spreading out sector risk.
If you want a decent distribution (but not always a better total return) then you might want to consider ZEO.
Horizons Canadian Midstream Oil & Gas Index ETF (HOG)
I’ve written and profiled Horizons ETF before on this site, and I like their ETF menu.
HOG is another one to add to the O&G mix if you wish, and is marketed as a “less volatile way” to invest in Canadian energy, by providing exposure to midstream oil and gas companies. Think companies that help transport, store and/or are involved in the processing of O&G. In HOG, you’ll find the big three pipelines in Canada, fuel retailers, and other transportation stocks.
Over the last 12-months the yield from this ETF has hovered around 4%.
Total returns matter though.
As honourable mention, there is also HXE: Horizons S&P/TSX Capped Energy Index ETF.
HXE provides market-cap weighted exposure to Canadian energy stocks by passively tracking the S&P/TSX Capped Energy Index (Total Return). The ETF pays no dividends as those are reinvested automatically due to its corporate class structure and total return swaps.
Top Canadian Energy ETFs and Stocks – My Ownership
For years, I’ve owned the aforementioned three pipeline stocks (Pembina (PPL), TC Energy (TRP) and Enbridge (ENB)) and I have no intention of selling any shares in any of them.
In fact, I’ve owned ENB for 15 years now.
For a few years, I’ve also owned a decent chunk of Canadian Natural Resources (CNQ) stock. You can read more about my long-term ownership in that stock below.
Finally, I started making a push into Whitecap Resources (WCP) back in 2021.
I bought more of both, in 2022!
Top Canadian Energy ETFs and Stocks Summary
Early on in the pandemic, energy companies watched their stock prices tank…
Well, that couldn’t last forever.
In recent years, energy stocks have been on a tear but this is a good time to remind you as well as energy has done, the simple XIU TSX 60 index has done even better. This means, when in doubt about any individual stocks for income or growth, consider index investing. This way, you don’t have to worry about individual stocks tanking, cycling in price; sustainable cashflows or dividends that may get chopped or suspended.
Source: Portfolio Visualizer.
On the flipside, some companies (CNQ!) are likely to throw out some special dividends in 2024 once certain critieria is achieved. Meeting those targets is well underway…
Key CNQ takeaways from their recent earnings call:
- Record natural gas production from North American operations and increased production from heavy oil and thermal in situ areas.
- The company’s financial performance remained robust, with adjusted funds flow of $4.7 billion and adjusted debt earnings from operations of $2.9 billion in Q3 2023.
- Approximately $6.1 billion has been returned to shareholders through dividends and share repurchases year-to-date.
- Plans to increase the base quarterly dividend by 11% to $1 per common share.
- Aim to achieve a net debt level of $10 billion in Q1 2024 and increase returns to shareholders to 100% of free cash flow at that time.
- Commitment to reducing greenhouse gas emissions, with a target of a 40% reduction in absolute emissions by 2035 and net-zero emissions in the oil sands by 2050.
As always, consider your tolerance for investing risk, goals/objectives and time horizon in any investment decision. I know when it comes to my/our portfolio, I’m happy to own the assets I do amongst other stocks for growing income and capital appreciation – including any special dividends around the corner. 😉
I look forward to hearing from you about what you own in the energy sector too.
Mark
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
Hello Mark;Thank you for your review of holding energy equities.As part of a diversified portfolio, I consider the energy sector to be an important area to be invested in. I realize this sector is cyclical and stock prices do fluctuate due to several factors. I choose to own the best quality companies showing dividend payments/growth, consistent debt management, some stocks buybacks,a known reserve base, and a proven record of success across the cycles. Over the past few years our portfolio weighting in energy has grown from under 4% to over 12%. At some point, trimming several outsized gains will be considered in a few smaller cap holdings.
Our largest position , which is a core holding , is CNQ at 4% of our portfolio. I value the management focused experience, the companies strong dividend yield and growth, as well as the long life reserve base. Over just the last few years purchases were made at $20, $30, and $60 as well as regular dividends reinvested. We have been very fortunate. Regards Mike
Yes, O&G is cyclical – hence my lower % of my overall portfolio in it but hard to ignore the recent run-up.
I really like/have liked/continue to like CNQ as a major holding and it’s about 3% of our overall portfolio, that could grow in time too!
Mark
I use NXF.B in registered accounts and hold a few individual Canadian O&G stocks in the non reg portion. Here is why:
– The .NXF.B is Non Hedged to Can$, so eliminates risk of Canadian dollar devaluation relative to US buck.
– It is North America; so you do not have the drama of the rest of the world.
– It is not Canadian focused, the regime in Ottawa is inherently hostile to O&G and inherently hostile to prosperity in the periphery (non Ontario\Quebec) Therefore they will continue to take ever more punitive action against Canadian O&G in the future.
– it trades in Can$ on Canadian markets so it is easy.
Thanks for those insights, BK. Interesting, I don’t know about NBF.B but will look at out of curiosity.
Cheers,
Mark