The S&P/TSX Composite Index has been getting attention for its record highs this month, and energy is doing some of the work, which may be driven by the surge in crude prices tied to escalating Middle East tensions. What is worth adding to the picture, separate from what is actually driving the move, is that an investor buying into this strength today may pick up a dividend yield that happens to be sitting at or above the five-year Government of Canada bond yield, currently at 3.2%.
The distinction matters for how this gets discussed with clients. Energy exposure here may still fundamentally be a commodity and momentum trade, but it is a trade that happens to come with an income component competitive with the closest thing Canada has to a risk-free rate. That is a reasonable secondary consideration for income-oriented investors evaluating the sector, without treating it as the explanation for the current strength or assuming it will cushion a pullback if oil reverses sharply. This occurred briefly earlier this week, when WTI crude declined from last week’s highs of around US$92 to approximately US$85 at the time of writing.
What may be worth watching is the crude price itself, with oil pushing toward the low US$90 level last week amid escalating Middle East tensions and the S&P/TSX Composite riding that move to fresh records earlier this week. If this kind of layered view is useful to how you think about sector positioning, Equity Leaders Weekly is built to surface this kind of detail for advisors managing client portfolios. We are growing our readership and welcome introductions to other advisors who would benefit from our insights.
Canadian Energy Sector Returns
The trailing return profile shows just how sharp the recent acceleration has been. As you can see in the chart, energy pulled back through June before reversing sharply as oil prices spiked last week amid escalating tensions in the Middle East. From there, the sector more than made up the lost ground, even after this week’s pullback.
Year-to-date returns have climbed to 39.24% for the iShares S&P/TSX Capped Energy Index ETF (XEG.TO), compared with 12.73% for the S&P/TSX Composite Index. That gap holds across shorter periods as well, with XEG.TO up 10.52% over one month versus 2.20% for the S&P/TSX Composite Index. This reflects how much of the past year’s gain has come in short, sharp bursts tied to geopolitical and commodity catalysts rather than through a smooth progression higher.
That return pattern, a meaningful drawdown followed by a fast recovery that pushed the sector well ahead of the broader index, is worth flagging on its own. It suggests that energy’s outperformance this year has been driven less by a steady re-rating and more by episodic repricing around oil-supply risk, a dynamic that can reverse as quickly as it develops.
Energy Names as an Income Play
This is also displayed in the relative strength matrix of the SIA S&P/TSX 60 Index Report, with five of the 15 top-ranked names falling within the Energy sector. What stands out further is the yield profile those names carry. Enbridge and Pembina Pipeline sit among the highest-yielding names in the entire report, at 4.97% and 4.17%, respectively, comfortably above every bank and insurer on the list.
Suncor and Imperial Oil trail by comparison on yield, showing the range within the sector itself. Even so, energy’s five entries in the top 15 carry an average yield well above that of the table’s other sectors, pairing leadership with income in a way that is not matched elsewhere on the list.
In the comparison chart of XEG.TO versus the S&P/TSX Composite Index, you can also see the strength favouring XEG.TO since 2021. Currently, the comparison chart is in a column of Xs, continuing to favour XEG.TO at the time of writing.
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