3 Best Canadian Energy Stocks for Unstoppable Passive Income

Three Canadian energy stocks will continue to pay quarterly dividends, notwithstanding the sector’s highly volatile nature.

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TSX’s energy sector is constantly volatile but is vital to the economy. For dividend earners and investors, oil & gas companies are excellent passive-income sources.

If you desire unstoppable cash flow streams, Pembina Pipeline (TSX:PPL), Suncor Energy (TSX:SU), and ARC Resources (TSX:ARX) are among the best Canadian energy stocks to own today. The dividend yields aren’t the highest in the market, but the quarterly payouts should be rock steady in the years ahead.

A high-yield staple

Many investors consider Pembina Pipeline a staple in a stock portfolio for its low-risk business model and resilient cash flows. The $22.9 billion energy player boasts integrated and hard-to-replicate transportation and midstream assets, including a leading network of pipeline systems (conventional, oil sands, and transmission).

Pembina’s value chain (natural gas, natural gas liquids, and oil & condensate) links producers with consumers, industrial users, and other third-party pipelines and facilities. Besides the diversified business, 80% of distributable cash flow comes from fee-based, high take-or-pay contracts.

The payouts to shareholders have grown since 1998, although the dividend policy or frequency changed starting in 2023 from monthly to quarterly. Still, the dividend yield is a generous 6.38% if you invest today ($41.59 per share).

Oil bellwether

An oil bellwether like Suncor Energy is a no-brainer buy. The $52.6 billion integrated energy company is into oil sands development, production and upgrading. It also operates refineries in North America and has offshore and gas investments in the U.K. and other international markets.

Suncor’s retail business is Petro-Canada, which has more than 1,800 retail and wholesale outlets across Canada. The Electric Highway, or network of fast-charging electric vehicle (EV) charging stations, is part of this retail distribution network. Management also commits to growing its renewable energy portfolio.

Suncor lost its Dividend Aristocrat status in 2020 during the oil slump when it slashed dividend payments. However, the energy stock has regained investors’ confidence with the 100% and 24% dividend increases in 2021 and 2022. At $40.14 per share, the dividend offer is 5.2%.

For 2023, Suncor plans more economic investments ($5.4 to $5.8 billion) to improve efficiency, flexibility, and resiliency. It should result in increased funds flow. It will also allocate 50% of excess funds to share buybacks.

Long-standing mechanism

ARC Resources is cheaper at $19.62 per share, although the yield is a modest 3.49%. However, performance-wise, it outperforms the sector (-0.89%) and broader market (+6.07%) thus far in 2023 with a 9.65% year-to-date gain. The total return in 3.01 years is an impressive 298.62%.

The $11.99 billion oil & gas producer maintains resource-rich properties in the Montney with inexhaustible top-tier development opportunities. ARC’s energy value chain begins with drilling and completions, then pass through production and processing before transporting natural gas, condensate and NGLs to domestic and international end markets.

Management’s primary and long-standing mechanism is to return capital to shareholders. Because of the higher base production in the first quarter of 2023, the board approved a 13% dividend increase. The 26-year dividend track record also lends confidence to invest in this energy stock.

Dividend consistency

Pembina Pipeline is my first choice of the three featured energy stocks. But investors can also rely on Suncor Energy and ARC Resources for consistent dividend payments.

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends Pembina Pipeline. The Motley Fool has a disclosure policy.

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