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3 Unknown but Amazing Dividend Stocks

By Matthew DiLallo – Updated Oct 21, 2019 at 2:01PM

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These Canadian oil companies have done an excellent job of rewarding their investors over the years.

Most U.S. investors avoid dividend-paying stocks from other countries. Reasons range from foreign exchange fluctuations to how other countries tax dividends. Because of that, they can miss out on some excellent opportunities.

One place that has some amazing but overlooked dividend stocks is Canada's oil and gas sector. The country's largest oil producers -- Canadian Natural Resources (CNQ -0.34%), Suncor Energy (SU -0.60%), and Imperial Oil (IMO -2.06%) -- have a history of consistently increasing their above-average dividends. That makes these energy stocks ones income-seeking investors won't want to overlook.

A bag of money next to stacks of coins.

Image source: Getty Images.

19 years and counting

Canada's energy sector has had its share of challenges over the years. One of the biggest is that the country doesn't have enough infrastructure to get its oil and gas to global markets. This access issue has weighed on the prices of the commodities it produces. That has hurt the country's smaller producers, which don't have an integrated system to maximize the value of the barrels they produce.

Larger integrated producers like Canadian Natural Resources, on the other hand, have been better equipped to handle the region's infrastructure issues. As a result, the company generates boatloads of free cash flow, which it has used to expand its operations and dividend.

The Canadian oil and gas giant most recently boosted its payout in March, marking 19 consecutive years of dividend increases. Overall, the company has grown its dividend at a 21% compound annual pace over that time frame, including by 12% this year. Those increases have helped push the yield up to its current level of 4.5%.

Thanks to its large-scale operations, low production costs, and healthy financial profile, Canadian Natural Resources expects to continue to raise its dividend for the foreseeable future. While it likely won't increase it quite as fast due to its much larger size, its focus on expanding its cash flow should give it the funds to maintain its dividend growth streak.

17% in year 17

Suncor Energy also has an excellent dividend track record. The Canadian oil sands company has increased its payout for 17 straight years, including 17% for 2019. With its latest increase, its dividend yield stands at a well-above-average 4.2%.

Despite Canada's infrastructure issues, Suncor Energy fully expects to continue to grow its dividend in the coming years. In the company's view, it can increase its cash flow by around a 5% compound annual rate from 2020 through 2023, assuming no improvement in oil prices. Driving that growth are the various initiatives in progress to improve operations and cut costs. Given that outlook, Suncor should also be able to grow its dividend by at least 5% annually over that time frame.

Almost an Aristocrat

Imperial Oil has a fantastic dividend track record. The Canadian oil producer has paid a dividend for more than 100 straight years, including increasing it in each of the last 24 consecutive years. One more, and it would qualify as a Dividend Aristocrat if it were a U.S. company.

Imperial Oil has increased its payout at an 8.7% compound annual rate over the last five years, which is impressive considering all the volatility in the oil market. That's helped boost the oil stock's yield to an above-average 2.7%.

The company should be able to keep that trend going in the coming years. That's because at $40 oil, it can produce enough cash flow from operations to fund its current dividend and planned expansion-related spending. With crude currently well above that level, Imperial Oil appears poised to keep generating excess cash. That will give it the funds to buy back more of its stock, which would provide even more support for its ability to keep boosting the dividend.

These oil-fueled dividends are worth a closer look

Oil price volatility has claimed its share of the energy sector's dividends in recent years. However, this trio of Canadian oil producers have not only managed to maintain their above-average payouts but also keep increasing them. That trend should continue since all three are employing strategies that should expand their cash flow even if oil prices remain low. Thus, income investors might want to consider adding one of these oil-fueled dividends to their portfolios.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Suncor Energy Inc. Stock Quote
Suncor Energy Inc.
$28.15 (-0.60%) $0.17
Imperial Oil Limited Stock Quote
Imperial Oil Limited
$43.27 (-2.06%) $0.91
Canadian Natural Resources Limited Stock Quote
Canadian Natural Resources Limited
$46.57 (-0.34%) $0.16

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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