The energy sector has long been a cornerstone of many portfolios, especially for investors seeking dividend income and growth potential. The recent pullback in oil prices, largely driven by economic concerns, has left several top-tier energy stocks trading at attractive valuations. While the market has been spooked by fears of an economic downturn, there’s a growing consensus that a soft landing is still within reach, which could make now an opportune moment to buy the dip.

Three energy dividend stocks that stand out in this environment are Cenovus Energy (CVE), Matador Resources (MTDR), and Baker Hughes (BKR). With oil prices appearing to be near a cyclical low, these stocks could offer a compelling opportunity for long-term investors looking to capitalize on the sector’s recovery while locking in attractive dividends. Moreover, all three stocks have a consensus “Strong Buy” rating from analysts, with at least 31% upside potential to Wall Street's mean price targets.

Let’s dive into why now might be the ideal time to add these energy dividend stocks to your portfolio.

1. Cenovus Energy Inc.

With a market capitalization of $30.1 billion, Canadian energy company Cenovus Energy (CVE) holds a diversified portfolio encompassing conventional oil (CLV24), oil sands, and natural gas (NGV24) assets. This diversity strategically positions the company to navigate fluctuations in commodity prices.

Cenovus Energy has positioned itself for growth through strategic acquisitions and partnerships. The 2021 acquisition of Husky Energy significantly enhanced the company’s scale and capabilities. Following the acquisition, it became Canada’s second-largest refiner and upgrader. Additionally, Cenovus reached its net debt target of $4 billion in July, allowing the company to begin returning 100% of excess free funds flow to shareholders starting in the third quarter, making it particularly appealing to dividend investors.

Shares of Cenovus Energy have lost about 2.7% year-to-date, slightly underperforming the Energy Select Sector SPDR Fund ETF’s (XLE) 2.1% gain over the same period.

Cenovus reported its financial results for the second quarter of fiscal 2024 on Aug. 1. In Q2, its total revenues reached C$14.9 billion, up from C$13.4 billion in the first quarter, primarily due to higher benchmark oil prices, including a narrower light-heavy crude oil differential, and strong operating performance. 

Upstream revenues amounted to C$7.9 billion, rising from C$7.1 billion in the first quarter, while downstream revenues increased to C$9.1 billion from C$8.6 billion in the previous quarter. Additionally, Cenovus generated C$2.8 billion in cash from operating activities, up from C$1.9 billion in Q1, while adjusted funds flow and free funds flow remained relatively consistent with the first quarter at C$2.4 billion and C$1.2 billion, respectively. Its Q2 GAAP EPS grew 6% quarter-over-quarter to C$1.26.

The company returned over C$1.0 billion to common shareholders in the quarter through its base dividend, share buyback program, and variable dividend. Cenovus stock offers a forward dividend yield of 3.89%, which is below the sector median of 4.45%. However, CVE’s moderate payout ratio of 22.23% suggests significant potential for dividend growth.

CVE’s upstream business maintained strong operating performance, with production exceeding 800,000 barrels of oil equivalent (BOE) per day, consistent with the previous quarter. Production for the first half of 2024 remains at the upper end of the company’s guidance range. Notably, the operating performance of its oil sands assets continued to be outstanding in the second quarter. Refining throughput in the second quarter was 622,700 bbls/d, down from 655,200 bbls/d in the first quarter, primarily due to planned maintenance in Canadian Refining and both planned and minor unplanned outages in U.S. refining operations.

For 2024, management expects total upstream production to range from 785,000 BOE/d to 810,000 BOE/d, an increase of 7,500 BOE/d at the midpoint, driven by strong year-to-date performance and asset reliability. Also, based on the U.S. Refining business performance year-to-date and the optimization of upcoming turnaround activities, management revised full-year downstream throughput guidance to 640,000 to 670,000 barrels per day, reflecting a 5,000 bbls/d increase at the midpoint.

Overall, the company demonstrated strong operational performance across its portfolio in the second quarter, with robust production from its upstream assets and increased crude throughput at its U.S. refineries.

Analysts tracking the company project a 17.83% year-over-year rise in Cenovus earnings to $1.85 per share for fiscal 2024. Also, Wall Street anticipates CVE’s revenue to increase by 11.38% year-over-year, reaching $43.17 billion in fiscal 2024.

In terms of valuation, at 8.19 times forward earnings, the stock trades at a notable discount compared to the sector median of 11.19x and its own five-year average of 13.59x. Also, CVE's forward EV/EBITDA ratio stands at 4.07x, well below the sector median of 5.74x.

Following the earnings report, on Aug. 2, National Bank raised its price target on Cenovus Energy to C$38 from C$36 and kept an “Outperform” rating on the shares. Overall, analysts have a consensus rating of “Strong Buy” on Cenovus Energy stock, with a mean target price of $24.06, which indicates an upside potential of about 49% from the stock’s Friday close. 

Among the 14 analysts covering CVE, 11 recommend a “Strong Buy” and three assign a “Moderate Buy” rating. 

2. Matador Resources Company

Matador Resources (MTDR) is an independent exploration and production company that focuses on unconventional oil and natural gas projects in the United States. Established in 2003 by industry veteran Joseph Foran, the company’s primary operations concentrate on the liquids-rich areas of the Wolfcamp and Bone Spring formations in the Delaware Basin, which encompasses West Texas and Southeast New Mexico. It currently has a market capitalization of $6.22 billion.

Matador strengthened its position as a top 10 producer in the Delaware Basin with the $1.9 billion acquisition of Ameredev in mid-June, a strategic bolt-on deal. This acquisition expands Matador's footprint in the basin to over 50,000 acres, especially enhancing its presence in the key Antelope Ridge area. Additionally, Ameredev brought with it a 19% stake in Piñon midstream assets, reducing Matador's reliance on third-party gathering and improving cost efficiency.

Shares of Matador Resources have dropped 12.4% on a year-to-date basis, lagging behind the XLE’s gain over the same time frame.

On Sept. 5, Matador Resources paid its shareholders a quarterly dividend of $0.20 per share, in line with the previous. Its annualized dividend of $0.80 per share translates to a dividend yield of 1.61%, below the sector median of 4.50%. However, the company boasts a 3-year dividend growth rate of approximately 120%, significantly higher than the sector median of 22.93%. Furthermore, it maintains a payout ratio of just 9.86%, indicating substantial potential to increase its dividends in the future.

Matador Resources reported its second-quarter earnings results on July 23. Total revenues increased by 32.8% year-over-year to $847.13 million, beating Wall Street’s expectations by $24.6 million. The top-line growth was primarily fueled by a rise in oil revenues, driven by a 25% increase in oil production and an 11% increase in the weighted average oil price realized during the second quarter. MTDR’s adjusted EPS came in at $2.05 for the quarter, topping analysts’ expectations by $0.30. 

Net cash from operating activities increased by 32% from the previous year to $592.9 million, with an adjusted free cash flow of $167.0 million.

The production figures were also impressive. Matador reached a record average total production of 160,305 BOE per day in the second quarter, exceeding the upper end of its guidance range. Notably, the company achieved a record average oil production of 95,488 barrels per day, surpassing the midpoint of management’s forecast of 93,000 barrels per day by 3%.

Alongside its record production performance, Matador also managed to keep costs lower than anticipated during the second quarter. Drilling, completing, and equipping capital expenditures totaled $314.5 million, which was $25.5 million, or 8%, below the expected $340 million for the quarter.

Buoyed by the record production results, management raised its full-year production guidance. For 2024, the company now anticipates average total production of 158,500 to 163,500 BOE per day, an increase from the prior forecast of 153,000 to 159,000, with average oil production expected to range from 93,500 to 96,500 barrels per day, up from the previous projection of 91,000 to 95,000.

Analysts tracking the company project a 15.66% year-over-year increase in its profit to $7.83 per share for fiscal 2024, along with an expected 26.86% year-over-year rise in revenue to $3.56 billion.

In terms of valuation, priced at 6.34 times forward earnings, the stock is trading at a significant discount compared to the sector median of 11.22x and its own five-year average of 15.35x. On a forward EV/EBITDA basis, the stock also appears undervalued. Matador is trading at 3.49x, below the sector median of 5.76x and its five-year average of 5.08x.

Overall, analysts have deemed Matador Resources stock a “Strong Buy,” with a mean target price of $80.33, indicating an upside potential of about 61% from Friday’s closing price. Out of 13 analysts covering the stock, 10 recommend a “Strong Buy,” two suggest a “Moderate Buy,” and one assigns a “Hold” rating.

3. Baker Hughes Company

Baker Hughes Company (BKR), headquartered in Texas, provides oilfield products, services, and digital solutions. With a market capitalization of $33.2 billion, BKR is among the world’s largest oilfield service providers. The company offers a wide array of services, including drilling, well intervention, decommissioning, surface pressure control, onshore composite piping, reservoir technical services, and integrated well services.

BKR is well-positioned for the future of energy, experiencing strength and resilience in its gas technology and LNG portfolios within the Industrial & Energy Technology Segment. These technologies are designed to meet the growing global demand for natural gas and provide oilfield services and equipment, as more precise drilling and completion (D&C) programs focus on enhancing the production lifecycle of oil wells.

Shares of Baker Hughes have fallen 2.3% on a year-to-date basis.

On Sept. 12, Baker Hughes unveiled CarbonEdge, powered by Cordant, the first comprehensive, risk-based digital solution for CCUS operations. This innovative tool offers extensive support for regulatory reporting and operational risk management. CarbonEdge features an intuitive, integrated dashboard that provides accurate, real-time data and alerts on carbon dioxide flows throughout CCUS infrastructure, including carbon capture, compression, pipeline transportation, and subsurface storage. This seamless connectivity across the entire CCUS project lifecycle allows customers to identify and manage risks, make better decisions, boost operational efficiency, and streamline regulatory reporting.

Baker Hughes has a long history of paying dividends. The company boasts a track record of paying dividends for 34 consecutive years, far exceeding the sector median of 3.2 years. On Aug. 16, BKR paid a quarterly dividend of $0.21 per share to its shareholders, marking a 5% increase from the same quarter the previous year. Its annualized dividend of $0.84 results in a forward yield of 2.51%.

On July 25, Baker Hughes reported Q2 results that surpassed expectations, driven by increased demand for its drilling services and equipment in international markets. The company’s revenue for the quarter was $7.14 billion, marking a 13% increase year-over-year, fueled by higher volumes in the Industrial & Energy Technology (IET) and the Oilfield Services & Equipment  (OFSE) segments.

Notably, revenues in the OFSE unit increased by 3.5% year-over-year to $4.01 billion, while the IET segment saw a 28% rise to $3.13 billion. As a result, BKR's top line topped Wall Street’s estimates by $300 million. BKR’s Q2 adjusted net income surged 44% year-over-year to $568 million, or $0.57 per share. The bottom line also topped expectations by $0.08. Its orders increased 1% from a year ago to $7.5 billion, including $3.5 billion of IET orders.

Adjusted EBITDA increased by 25% year-over-year to $1.13 billion, fueled by robust backlog conversion in both SSPS and IET, effective management of aero-derivative supply chain constraints in Gas Tech Services, and the achievement of efficiency gains and productivity improvements throughout the business. Adjusted EBITDA margin improved by nearly 150 basis points year-over-year to 15.8%. Importantly, the company once again surpassed its EBITDA margin guidance, thanks to exceptional execution and ongoing improvements in cost productivity. 

Baker Hughes maintains a strong balance sheet, ending the second quarter with $2.3 billion in cash, a net debt-to-EBITDA ratio of 0.9x, and liquidity of $5.3 billion. Notably, the company generated $348 million in cash flow from operating activities and $106 million in free cash flow.

Baker Hughes provided Q3 revenue guidance that aligns with expectations, projecting $6.97 billion to $7.46 billion, and raised its FY24 revenue forecast to $27.6 billion to $28.4 billion, up from the previous range of $26.5 billion to $28.5 billion.

Analysts tracking the company predict a 40% year-over-year increase in its profit to $2.24 per share for fiscal 2024. Additionally, Wall Street expects BKR’s revenue to grow 9.89% year-over-year to $28.03 billion in fiscal 2024.

In terms of valuation, BKR stock is currently trading at 14.81 times the consensus earnings estimate for 2024. This is above the sector median of 11.22x, yet below its own five-year average of 30.91x. Also, the company's forward EV/EBITDA ratio stands at 8.18x - again, above the sector median of 5.76x, but below its own five-year average of 9.61x.

Analysts have a consensus rating of “Strong Buy” on Baker Hughes stock. Among the 20 analysts in coverage, 16 recommend a “Strong Buy,” one suggests a “Moderate Buy,” and the remaining three analysts have a “Hold” rating. The mean target price for BKR stock is $43.63, which is about 31% above Friday’s closing price.

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On the date of publication, Oleksandr Pylypenko did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.