TFSA Investors: The Best TSX Energy Stocks for Fast-growing Passive Income

Are you building your TFSA passive income portfolio? Then you can’t miss out on having Canadian energy stocks.

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Canadian energy stocks are rising with oil prices

Inflation has finally started easing, giving you a breather. The past two years did teach us how important it is to have an alternative source of income. If you work in airlines or IT, you know how messy job cuts can get. It is better to start working on a passive income source, and what better place than the TSX. The Canada Revenue Agency (CRA) launched the Tax-Free Savings Account (TFSA) in 2009 to encourage savings among Canadians. 

Building a fast-growing passive income portfolio in your TFSA

TFSA withdrawals are tax-free no matter how much you withdraw, making it a tax-effective account to create your passive income portfolio. You can create one portfolio for every goal – one for retirement, one for vacation, one for secondary income, and one for house buying. 

At the core of building a portfolio is diversification. Diversify your investments across sectors, market caps, and asset classes. Each of them reacts differently to a situation. 

  • Energy stocks are cyclical and tend to do well in an inflationary environment. 
  • REITs do well in a low-interest-rate economy as more people and companies buy properties. 
  • Large-cap stocks are more stable than small cap in a weak economy. 
  • Bank and lending stocks do well in a growing economy. 
  • The telecom sector is resilient and maintains stable performance across all market cycles. 

A mix of the above stocks can help you secure passive income in every market condition. 

The best energy stocks for fast-growing passive income

Canada has some of the best energy stocks because of its rich oil and gas resources. And these energy stocks pay regular dividends and also grow them. A Canadian passive income portfolio is incomplete without an energy stock. You can consider adding the below stocks to your portfolio. 

Suncor Energy stock 

Suncor Energy (TSX:SU) is Canada’s largest integrated oil company. It does everything from extracting oil, refining it to a higher-grade product, and retailing it to gas stations. Its production scale helps it produce per barrel at an average cost of $30-$43. Integrated operations help it maximize the value of every barrel. When the oil price rises, the production segment earns higher revenue. When the oil price falls, the retail segment earns higher revenue. 

By offsetting risk in this way, Suncor’s dividends are stable compared to those of other oil stocks. The pandemic crisis pulled down oil prices to $35 (below production cost), which pushed Suncor into losses and forced it to slash dividends. But the oil price was bound to recover given the cyclicality of the commodity. Thusly, Suncor made up for dividend cuts by doubling its dividend in 2021. 

It used the windfall gains from the $80-$100 oil price to pay off its debt maturities till 2025. The next debt maturity of $1.1 billion is between 2026 and 2030. It means the company has the flexibility to withstand a recession. Moreover, Suncor is acquiring TotalEnergies Canada, which generated $2 billion in adjusted funds from operations in 2022. 

Suncor has been paying regular quarterly dividends since 1992 and even grew them in most years. Till the oil price is above $50-$60, Suncor can comfortably grow dividends and add to your passive income. Now is a good time to buy the stock as it trades closer to its 52-week low of $36.38. You can lock in an over 5% dividend yield. 

TC Pipeline stock

You can mitigate the volatility of Suncor stock with TC Pipeline (TSX:TRP). TC Pipeline’s profits are not affected by oil and gas prices but by the volumes transmitted through the pipelines. Moreover, it has been growing dividends at a 7% average annual rate for 23 years. The company slowed its dividend growth to 3% in the last three years as it cancelled a phase of the Keystone XL pipeline in 2021, and the Coastal GasLink pipeline went over budget in 2022. 

But it continued paying dividends and is now on track to bring over $6 billion worth of projects online. Now is a good time to lock in a 6.8% yield while the stock trades near its 52-week low of $50.70. 

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 Puja Tayal has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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