Top TSX Energy Stocks to Buy for Passive Income and Upside

Enbridge (TSX:ENB)(NYSE:ENB) and TC Energy (TSX:TRP)(NYSE:TRP) are great TSX energy stocks if you seek big dividends and growth.

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TSX energy stocks have been steadily moving higher off the ominous bottoms of last year. But as the oil rally looks to run out of steam, should Canadian investors be treating any near-term pullbacks as an opportunity to top up? Or are such names to be avoided, despite their juicy and sustainable dividends?

With valuations across the board continuing to climb, I’d argue that injecting some commodities into your portfolio is a pretty good idea. While I’m no fan of timing the markets over market strategist calls for a market correction over the near to medium term, I do think that improving your portfolio’s diversification is only a good thing. Don’t expect a correction, but do be prepared for one. As someone wise once put it, hope for the best, but do be prepared for the worst!

TSX energy stocks with upside potential

With a considerable amount of risk ahead, I think it’s only wise to reach for value, as most others continue driving momentum stocks higher. It’s value that I believe will be relatively immune to the next big pullback. And in terms of value, I think it’s tough to match that offered by some of the quality names in Canada’s energy patch. Despite much-improved prospects, I still see deep value, especially with the midstream players. That’s why Enbridge (TSX:ENB)(NYSE:ENB) and TC Energy (TSX:TRP)(NYSE:TRP) are my two top TSX energy stock picks to buy and hold for the next two years.

Going into September, a seasonally spooky period for investors, shares of both ENB and TRP stock look to be trading at a dirt-cheap multiple, with yields that continue to skew towards the higher end of the historical range. Both names, I believe, are magnificent buys for prudent investors who may be lacking on either value names or energy plays.

Enbridge

Enbridge is a dividend darling that I think could be making a major comeback on the back of improving industry conditions. Undoubtedly, Enbridge stock has been a portfolio mainstay through the early to mid-2010s. Shares offered a juicy dividend yield, a predictable dividend growth trajectory, and solid growth fuelling steady capital gains. In a way, it was one of the best names to get the best of both worlds: gains and passive income.

The stock eventually crashed, as the industry environment soured. It’s been many years that Enbridge and the broader basket of TSX energy stocks were stuck in limbo. If we’re in the early stages of this economic expansion out of the coronavirus recession, I think energy could be in for one last boom. And if that’s the case, Enbridge stock could return to its former glory. Now up over 25% year to date, I think Enbridge stock’s 6.5% yield is worth locking in before the stock continues its epic rally.

TC Energy

For those seeking a pipeline with incredible gas assets and geographic diversification, TC Energy is the horse to bet on. Personally, it’s my favourite TSX energy stock right now, with shares currently off 19% from their early 2020 all-time highs. The stock yields 5.7% and, like Enbridge, is well positioned to climb back over the next year or two, as the macro backdrop looks to improve further. The stock is up 18% year to date, with a 4.6 times sales multiple.

A low price of admission for a high-quality TSX energy stock with utility-like cash flows and one of the more predictable dividend-growth pathways out there.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Enbridge.

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