2 Red-Hot Energy Stocks to Buy for Big Dividend Growth

You don’t have to look all too far for deep value, at least on the TSX Index, which is rich with numerous energy names that still seem underappreciated by the market. Undoubtedly, energy prices have been under varying degrees of pressure over the past year, with West Texas Intermediate (WTI) prices dipping below US$60 per barrel for the first time in a long time. Indeed, lower oil prices represent a serious headwind for the many producers in the space.

Still, with so much pessimism surrounding the names, I think there’s an opportunity to make the most of the latest slip in the price of oil by backing up the truck on a well-run producer that can improve upon its operating economics as prices begin to moderate.

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Indeed, the producers may not be able to affect the price of oil, but they can make the most of a tougher situation by unlocking operating efficiencies where possible. In this piece, we’ll check out two intriguing energy producers that I’ll look to track down for dividend growth.

Cenovus Energy

Shares of Cenovus Energy (TSX:CVE) may have stumbled by around 7% from 52-week highs of around $25 per share. Still, the name is still up more than 45% in the past three months, making it one of the hottest large-cap energy plays in the nation. The latest slide in shares seems more like just another blip on the road higher, rather than the beginning of the end for one of the fastest-moving $41.8 billion energy titans. With the firm recently buying up an 8.5% stake in MEG Energy, we could be at the start of what could be an eventual takeover.

In any case, I must say I like the direction Cenovus is headed and would argue that a “lower for longer” oil environment might just allow Cenovus to acquire its way to greater growth at a lower price of admission. In the meantime, investors may wish to collect the 3.3%-yielding dividend while shares are going for a modest 16.33 times trailing price to earnings (P/E), a multiple that seems too cheap, given its growing presence in the lucrative, but currently pressured, oil sands.

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Suncor Energy

Suncor Energy (TSX:SU) stock is down around 9% from its 52-week high, thanks in part to the recent dip in oil prices. Despite the near-correction, SU stock has been gaining ground in the past six months, now up over 15% in the timespan. Time will tell if SU stock will get its big breakout moment. For now, the firm is going for cheap as the name comes back with a brief surge to new heights.

With considerable insider buying activity in recent weeks and a depressed 11.9 times trailing P/E on the name, I wouldn’t sleep on the 4.15% yielder, especially if you seek one of the biggest bargains in the Canadian oil patch. Oil prices may not be in an ideal spot, but Suncor hit a production record just a few months ago. And that should be enough to win investors’ attention despite the lacklustre environment for the energy names.