Are you looking to invest in Canadian natural gas stocks but are unsure of where to start?
Natural gas is Canada’s 3rd largest energy source by production as of several years ago.
Stocks of companies involved with natural gas tend to offer attractive dividends and allow you to access businesses involved with a cleaner fossil fuel relative to oil or coal.
I will cover the best natural gas stocks in Canada below and go over some of their key features and attributes.
Pros and Cons of Investing in Natural Gas Stocks
Natural gas stocks in Canada tend to have similar characteristics among themselves. They also come with key differences relative to other stocks or asset classes. When investing, no asset class comes without its advantages and disadvantages.
- Typically attractive dividend yields that provide a good source of income
- Investing in businesses that offer cleaner power generation relative to coal and oil
- Global demand for natural gas should persist due to its use in transportation, heating, cooking, power generation, and more
- Increasing competition from renewable energy competitors
- Natural gas prices can be volatile and fluctuate with geopolitical events
- Natural gas stocks are less likely to exhibit explosive growth
5 Best Natural Gas Stocks in Canada
1. Arc Resources Ltd.
- Ticker: ARX.TO
- Forward Dividend Yield: 3.73%
- Dividend Payout Ratio: 14.12%
- Dividend Yield (12-Month Trailing): 2.99%
- Upcoming Dividend Date: Oct 16, 2023
- Market Cap: $12.95 Billion
- Forward P/E Ratio: 8.23
ARC Resources is a Canadian energy company involved in the production, development, and exploration of natural gas, natural gas liquids, and crude oil. The company’s operations mainly take place in the Western Canadian Sedimentary Basin, one of the richest sources of natural gas in North America.
ARC Resources is Canada’s largest condensate producer as well as Canada’s 3rd largest natural gas producer.
As a business, Arc Resources focuses on four main themes:
- World-class infrastructure and assets
- Capital discipline
- ESG leadership
- Risk management and balance sheet strength
Trading under the ticker ARX on the Toronto Stock Exchange, the stock trades at a fairly reasonable valuation and is considered a mid-cap company in terms of size.
With a strong track record of managing a profitable business through multiple commodity price cycles, ARC Resources is a great Canadian natural gas stock to consider adding to your portfolio.
2. Canadian Natural Resources
- Ticker: CNQ.TO
- Forward Dividend Yield: 4.54%
- Dividend Payout Ratio: 32.56%
- Dividend Yield (12-Month Trailing): 3.97%
- Upcoming Dividend Date: Jan 05, 2024
- Market Cap: $97.08 Billion
- Forward P/E Ratio: 9.49
As an integrated energy company, Canadian Natural Resources is involved with the marketing, production, development, and exploration of:
- Natural gas
- Natural gas liquids
- Crude oil
Within Canada, CNQ is the largest heavy crude oil producer and one of the largest natural gas producers in North America.
The company is dual listed on both the Toronto Stock Exchange and the New York Stock Exchange under the ticker CNQ. You will be able to purchase shares in US dollars on the US side of your accounts.
Canadian Natural Resources focuses on four key themes:
- Technology and innovation
- Operational excellence
- Financial discipline
- ESG leadership
CNQ is very large compared to most energy peers in terms of market capitalization, and the company pays a very attractive forward dividend yield.
Given Canadian Natural Resources’ diversified energy portfolio and great track record of profitability, it is a great Canadian natural gas stock to consider adding to your portfolio.
3. Tourmaline Oil Corp.
- Ticker: TOU.TO
- Forward Dividend Yield: 1.76%
- Dividend Payout Ratio: 6.87%
- Dividend Yield (12-Month Trailing): 1.53%
- Upcoming Dividend Date: Nov 01, 2023
- Market Cap: $22.77 Billion
- Forward P/E Ratio: 10.87
Another key player in the Canadian natural gas space is Tourmaline Oil Corporation. Focused on production, exploration, acquisition, and development, TOU’s business operations are primarily focused in the Western Canadian Sedimentary Basin.
The company works primarily with natural gas and natural gas liquids. As one of Canada’s largest natural gas producers, the company is known for its cost controls and operational efficiency. TOU takes a disciplined approach to capital allocation while also prioritizing innovation and technology.
Trading on the Toronto Stock Exchange, Tourmaline Oil Corp. is a large-cap company that pays a below-average dividend yield relative to its natural gas peers. It trades at a richer valuation and can be classified as a growth stock based on its current multiples.
If you are not as concerned with a high-income stream and value operational excellence, Tourmaline Oil Corp. is a great Canadian natural gas stock to consider for your investment portfolio.
4. NuVista Energy Limited
NuVista Energy Limited is an oil and natural gas company in Canada. The bulk of the company’s operations is focused on the Montney Formation, one of the largest sources of natural gas in North America.
Nuvista Energy Limited works with natural gas, natural gas liquids, and crude oil, more specifically involving:
Within the oil and gas industry, NuVista Energy is known for having efficient operations and approaching resource development with a sustainable focus.
As a relatively smaller oil and gas company (by market capitalization), NuVista Energy does not currently pay a dividend to investors. The company’s stock may not be appealing to investors that are looking for an income stream from their investments.
If you are looking for a smaller Canadian natural gas stock to add to your portfolio, NuVista Energy is an option to consider.
5. Peyto Exploration & Development Corp
- Ticker: PEY.TO
- Forward Dividend Yield: 10.64%
- Dividend Payout Ratio: 26.91%
- Dividend Yield (12-Month Trailing): 8.66%
- Upcoming Dividend Date: Dec 15, 2023
- Market Cap: $2.56 Billion
- Forward P/E Ratio: 7.63
Another Canadian natural gas company to consider for your portfolio is Peyto Exploration & Development Corp. With operations centred on the Deep Basin in Alberta, Peyto is involved in the acquisition, development, exploration, and production of natural gas and natural gas liquids.
With a focus on developing its resources responsibly, Peyto has implemented various environmental initiatives over the past several years. The company not only focuses on operational excellence but also on maximizing the value of its assets for its shareholders.
Peyto Exploration & Development Corp is a relatively smaller energy company, classified as a small-cap stock. It trades at an inexpensive valuation based on multiples, also making it a value stock.
The stock currently offers investors an extremely high forward dividend yield. While this may not be sustainable in the future, it may be attractive for income-oriented investors looking for high-income sources.
Frequently Asked Questions
What are the Biggest Natural Gas Companies in Canada?
The largest Canadian natural gas company that is currently publicly traded is Canadian Natural Resources Limited. Keep in mind that market conditions can cause the market capitalizations of companies to fluctuate dramatically.
Is there a Canadian Natural Gas ETF?
Although you can typically get exposure to Canadian natural gas companies through an oil and gas sector ETF, one specific natural gas ETF does exist in Canada.
HUN offered by Horizons is an ETF that focuses on natural gas futures. While the ETF does not invest in natural gas stocks, the performance of the ETF should match that of natural gas prices as fluctuations occur over time.
Are Natural Gas Stocks a Good Investment?
Whether an investment is a good investment or not will depend on an investor’s specific investment objectives, goals, and risk tolerance.
Natural gas stocks can be a good investment for income-oriented investors. This is because these stocks usually offer an attractive dividend yield, typically over long periods of time.
If you believe that the price of natural gas will increase in the future, most natural gas stocks will likely benefit.
If natural gas prices fall in the future, it will likely negatively impact profits for most companies in the sector. This can lead to dramatic drops in share prices, especially if commodity prices are sharply impacted by geopolitical events or natural disasters.
Since natural gas stocks can be volatile, they are likely appropriate as a sleeve within your portfolio. In most cases, it does not make sense to have the majority of your entire investment portfolio invested in one sector or industry.
How to Buy Natural Gas Stocks in Canada
The cheapest way to buy stocks is from discount brokers. My top choices in Canada are:
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Investing in Canadian natural gas stocks can be attractive if you are looking for dividend companies or are bullish on natural gas as a commodity.
As a cleaner alternative to oil and coal, natural gas should face continued strong demand in the future due to the many different uses for the commodity.
As economies worldwide fully transition to renewable energy, the natural gas industry (as well as non-renewable energy in general) may face significant headwinds.
If you are looking for a more comprehensive list of energy stocks (not just natural gas), check out my guide on the best energy stocks in Canada.