Can Oil's Big Rally Deliver Reliable Income? 3 Energy Plays to Watch

Key Points

• Canadian Natural Resources offers a long history of dividend increases supported by its diversified oil and gas operations.
• Devon Energy's merger with Coterra has expanded its production base, while its shareholder returns now emphasize a fixed dividend and buybacks.
• XLE provides low-cost exposure to major U.S. energy companies and quarterly distributions, although its concentrated holdings still carry sector risk.

Heading toward the end of the year, energy stocks as a group have widened their performance gap over rivals in other sectors—including tech—thanks to sky-high crude prices, elevated crack spreads, sustained demand, and additional factors. While there are plenty of ways for investors to capitalize on the share price momentum to be found across the sector, it's also possible to view energy names as a core component of an income-oriented portfolio.

Canadian Natural Resources Ltd. NYSE: CNQ and Devon Energy Corp. NYSE: DVN represent two different ways to build income with energy stocks. Unlike more traditional dividend names in the utilities space or similar, these companies are both liable to benefit from broad momentum across the sector: indeed, CNQ shares are up almost 58% year to date (YTD) while DVN stock has risen about 30%. Investors seeking income potential from energy names should not overlook a more basic exchange-traded fund (ETF) play like the broad Energy Select Sector SPDR ETF NYSEARCA: XLE.

CNQ: Momentum Continues for Dividend Growth and Production

Canadian is a large and diversified oil and gas producer with major long-life oil sands assets. Along with the stability that comes from the company's broad base of oil-producing operations, it has a steady and impressive history of growing its dividend for nearly three decades. It currently pays a dividend yield of 3.36% on a payout ratio of 44.4%.

Investors will watch for Q3 2026 earnings for the latest updates, but Canadian has beaten analyst earnings estimates each quarter for the last two years already, and in Q2 2026 it topped revenue predictions by a massive $5.3 billion. This was thanks primarily to its noteworthy production of 1.68 million barrels of oil equivalent per day.

Canadian has raised its annual production guidance based on those results and has returned more money to shareholders through dividends and share repurchases. At the same time, it has had the cash flexibility to pay down debt and continue its history of acquisitions, which will help it to continue to scale its production going forward.

With all of this in mind, it's no surprise that most analysts rate CNQ stock a Buy, though there is a question about whether it can maintain its share-price momentum—Wall Street sees roughly 7% upside going forward.

DVN: Different Dividend Structure as the Company Navigates a Major Merger

Devon is a domestic oil and natural gas producer that previously offered a base dividend supplemented by variable distributions. The company now pays a fixed quarterly dividend, which it increased to 32 cents per share following its merger with Coterra Energy. As of November 2026, this means an overall dividend yield of 2.68% at a payout ratio of 30.4%.

Devon's major merger with Coterra Energy earlier this year has positioned the company for production scaling while also broadening its exposure to natural gas. This means that Devon can benefit in a scenario in which either or both oil and natural gas strengthen, helping to provide the company with more free cash flow to turn into a greater variable distribution.

On the other hand, Devon may need to reduce its distributions if there is significant volatility to commodity prices in the other direction, and the merger carries other integration and operational risks for investors that are likely to persist for some time. The company has a major share repurchase program ongoing, but it has a minimal track record.

Nonetheless, analysts remain very bullish on DVN shares overall, with 90% calling the company a Buy.

XLE: A Basic Approach to the Sector With Surprisingly Strong Distributions

XLE is a go-to benchmark for the energy sector, and for good reason: the fund has returned almost 50% YTD for a gross expense ratio of just 0.08%, making it an exceptional return for a minimal cost based on 2026 performance.

With holdings concentrated in major U.S. oil and gas producers, refiners, and energy service companies and strong trading liquidity, XLE offers investors a relatively straightforward way to invest across the sector. That said, the fund is heavily weighted toward big names like ExxonMobil NYSE: XOM, which represents just under a quarter of total invested assets (and potentially for good reason, given its recent earnings successes).

Many investors see XLE's dividend as a secondary benefit of the fund after its potential for price appreciation, but with a yield of 2.27%, it is notable as a source of passive income by itself. For investors looking to boost income without taking too granular an approach to the energy sector, XLE can be an option that provides both momentum and distributions.