If oil prices hold up, there may be more catalysts, such as the lure of dividends, that could drive stock prices higher.
The TSX’s energy index led the Toronto market’s gains with a 33.7 per cent jump in the first half of the year, eclipsing the high-flying technology sector (up 21.6 per cent), financials (+21.1 per cent) and healthcare (+21.7 per cent).
Enerplus Corp., the low-key operator of light oil and natural gas assets in Canada and the United States, led the energy brigade, rising 124 per cent in the six-month period. Its performance was only bested by Capstone Mining, a base metals producer, in the TSX Composite Index. Overall, six of the TSX Composite’s ten best-performing stocks were from the energy sector.
The small caps index was also dominated by energy stocks with the top five best performers focused on oil and gas activities.
But will the sector be able to repeat its first half performance?
Of course, all bets are off if oil prices crash and burn once again due to a host of factors including a vicious virus strain, OPEC infighting or more lockdowns. But if oil prices hold up, there may be more catalysts, such as the lure of dividends, that could drive stock prices higher.
“Capital discipline and maximizing free cash flow remains the core focus,” noted Dennis Fong, CIBC Capital Market analyst, after speaking to 25 energy companies late last month at an energy conference hosted by the bank. “Despite rising commodity prices, we found very little indication that producers are likely to meaningfully increase capital programs through the balance of 2021…. We would not be surprised to see dividend increases from royalty companies in particular, along with producers or share buybacks as price strength continues.”
Financial Post Staff