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Canadian oil and gas stocks, whether it be Canadian pipeline companies, oil producers or natural gas producers, are faced with economic conditions that have simply never been seen before.

COVID-19 wreaked havoc on all Canadian energy companies as the demand for oil plummeted, and cash flow was severely impacted.

And as these once popular Canadian stocks fell, dividend yields rose and they became attractive opportunities. Many who knew the industry was beat down loaded up on oil and gas stocks, and are seeing some nice returns.

As such, you'll see a mix of Canadian pipeline stocks, Canadian oil stocks and our winner on this list is actually a Canadian natural gas producer that held up admiringly well in 2020 and continues to excel today.

These oil stocks are still trading at discounts despite oil prices soaring post-pandemic. They're also still facing significantly volatility. If you're new to buying stocks, volatility is simply the overall velocity of the movements in a stocks price.

However, as a short to mid term play, we expect most of these stocks to outperform on a re-opening of the economy, surging demand, and the current conflict with Ukraine and Russia.

Yes, we know this post is supposed to be a list of the best Canadian oil and gas stocks. However, there is no doubting the fact that it may be wise to gain broad exposure to the energy industry rather than buying individual producers and hoping they're successful.

So how do you get this exposure on a producer level? Well, one of the most popular ways is buying the iShares S&P/TSX Capped Energy Index ETF (XEG.TO). This is an ETF that tracks some of the largest oil producers in the country, including Suncor Energy, Cenovus, Tourmaline, Canadian Natural Resources and more.

The ETF has $2.24B in assets under management and has fees of 0.61%. You'll have no problem trading shares either, as daily volume often exceeds 2.5 million shares.

You won't get any pipeline exposure out of this ETF, so it is important to keep reading this post, as it does include some!

With that being said, lets move on to the top oil and gas stocks on the Toronto Stock Exchange today.

What are the best Canadian oil and pipeline stocks to buy today?

• Parkland Fuel (PKI.TO)
• Canadian Natural Resources (CNQ.TO)
• TC Energy (TRP.TO)
• Enbridge (ENB.TO)
• Tourmaline Oil (TOU.TO)

5. Parkland Fuel

The energy sector is broad, and one segment that investors often forget about is the distribution and marketing of fuels and lubricants. Best to pay attention, as there are some strong companies in this industry.

One such company is Parkland Fuel. Parkland is one of the countries largest independent suppliers and marketers of fuel and petroleum products. It also has a leading network of convenience stores.

Parkland has been one of the best growth stocks in the energy sector over the last half decade. 

However, in the post-pandemic environment it has struggled. Which, is a good thing for those looking to buy stocks on the cheap.

It has grown revenue and earnings by an annual average of 20% and 50% respectively over the past five years. How was the company achieved such an impressive growth record?

Parkland is a serial acquirer and has been scooping up the competition at a significant pace. Over the past three, it has closed on six transformative acquisitions.

Unfortunately, the pandemic impacted the company’s bottom line. There was less traveling and working from home has impacted the demand for fuel. As a result, revenue dropped by 24% in fiscal 2020. Not surprisingly, its share price struggled well into 2021.

It is trading at a steep discount (30%) to analysts estimates which have a unanimous ‘buy’ rating and an average one-year target of $40 per share.

The short term pricing pressures are likely a result of the company's high debt levels. However, we expect the high rate environment to be short, and with interest coverage ratios of 2.5X, the company should weather the storm in the short term.

Simply put, this is a rebound play that doesn't quite have the "reopening" priced into it.

As investors wait for the rebound, they can also enjoy a safe and reasonable 4.5% dividend yield from this Canadian Dividend Aristocrat which has raised the dividend for seven consecutive years.

4. Canadian Natural Resources

We understand – it is very difficult to invest in oil producers.

There is a notable shift to renewables and the demand for oil cratered during the pandemic. However, demand has now rebounded and declining production will support prices.

There are similarities between current oil commodity crisis and what transpired with gold in the early 2010s. At that time gold stocks were highly leveraged which led to significant write-downs, dividend cuts and bankruptcies.

Sound familiar? The winners in the years that followed were those with low leverage and low costs.

In the oil industry, there is arguably no better operator than Canadian Natural Resources. The company is one of the lowest cost producers and can maintain positive cash flows despite low oil prices. Canadian Natural also produces a wide variety of products, including heavy crude oil, bitumen, natural gas, and NGLs.

On a corporate level, CNQ’s break even part is approximately ~$30/barrel – the lowest among oil sands producers.

What does this mean exactly? It means that the dividend is sustainable at WTI prices above this price point. In fact, the company came out with a dividend raise in early March of 2021, a double digit raise of 10.6%. When numerous junior producers and even one of the largest producers in the country Suncor were cutting dividends, Canadian Natural was boosting it.

It not only has operations in Western Canada, including the Canadian Oil Sands, but the North Sea and Africa as well.

The company is now yielding in the low 3.43% range and unlike some of the majors, navigated the crisis without a cut. It also has a 21-year dividend growth streak, which makes it one of the best income stocks in the country.

If oil continues to however around US$80/barrel then CNQ is one of the best options in the industry. If oil continues to rise? In this case, Canadian Natural would benefit significantly.

Simply put, this is a low cost, disciplined operator that is one of the best producers in the industry.

3. TC Energy

When it come to energy stocks, some of the best in the industry are midstream companies. Why?

They are less susceptible to the price of oil. Although they are vulnerable to lower throughput volumes, and bankruptcies from some of the smaller oil & gas companies, earnings are still underpinned by long-term contracts. One of the industry’s best is TC Energy.

During the pandemic in 2020, TC Energy was shaping up to be the best performing pipeline of the year, until it fell drastically in price to close out the year.

This was primarily from the cancellation of the Keystone pipeline, which has been all but an albatross for the company for some time now. In my eyes, the cancellation doesn't mean much. The company still has over $27 billion in projects in its pipeline, pun intended.

Furthermore, it is one of the best performing pipelines in the country. The company’s status as one of the premier midstream plays has been solidified even further due to its navigation of the pandemic, and the fact it operates one of the largest natural gas pipelines in North America.

Furthermore, outlook remains unchanged as 95% of EBITDA is underpinned by regulated assets and/or long-term contracts.

Despite thoughts to the contrary, TC Energy is also expected to grow at a decent pace. Through 2023 it expects to spend $37 billion on critical infrastructure across North America.

The company is also one of the premier income stocks on the TSX Index. It pays an attractive yield north of 5.5% which is underpinned by strong cash flows. In fact, the company re-iterated dividend growth guidance of 8-10% annually through 2021.

Post 2021, it expects the dividend to grow at a compound annual growth rate of 6% at the mid-range. Without a doubt, TC Energy deserves a mention whenever we talk about the top energy stocks in the country.

2. Enbridge

We could have just as easily swapped Enbridge and TC Energy in our rankings. We want you to keep this in mind, both of these pipelines are interchangeable in our eyes. So don't fret about one ranking higher than the other.

Much like TC Energy, Enbridge is one of the best midstream companies in the country. What gives Enbridge the slight edge? The dividend.

At 26-years, Enbridge has one of the longest dividend growth streaks in the country. It also currently yields a hefty 6%+, which is above historical averages. Is the dividend safe?

The dividend accounts for only 70% of distributable cash flow which is inline with the company’s target. As such, there is no reason for concern here.

Beyond 2022, Enbridge expects the dividend to be grow inline with DCF which is expected to grow by 5-7% annually. The company has also deleveraged, and current debt loads are within its targeted range of 4.5 to 5.0x EBITDA.

As of writing, Enbridge is currently trading at only 17 times forward earnings and 1.9 times book value. Both are considerably below the company’s five-year average of 23 and 2.33 respectively. It is also trading at a high single digit discount to analysts one-year price target of $58 per share.

Overall, the company generates considerable cash flow and is expected to grow the business in the high, single digits. Can it achieve this growth?

Considering the company has only missed expectations once in the past three years, Enbridge is also one of the most reliable energy stocks on the Index in terms of execution.

1. Tourmaline Oil

Tourmaline is the largest natural gas producer in the country and is almost a commodity pureplay (~80% of production).

Natural Gas Liquids (NGLs), Condensate and Oil account for the remainder of volumes. Importantly, demand and subsequently the price of oil has been the most impacted energy commodity.

Since oil accounts for only 3% of production at Tourmaline, it wasn't impacted by record low oil prices.

It is however, still faced with low natural gas prices. Fortunately, it has been dealing with low natural gas prices for years and it is one of the industry’s lowest cost producers.

The company expects to generate revenue in excess of $8.1B in 2022, which would mark a 60% increase from 2021 levels.

The company has a disciplined approach in which it has targeted a leverage ratio of 1.0-1.5 times cash flow, with excess free cash flow used to raise dividends and buyback shares.

Furthermore, natural gas fundamentals seem to be improving. In fact, experts believe we should see steadily improving supply/demand dynamics through 2023.

The market dynamics for natural gas appear to be more stable than that of oil, as such Tourmaline is positioned to continue its strong performance relative to energy peers. 

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