Dividend investing is a smart way to put your money to work in the stock market and grow your wealth. The TSX boasts a ton of high-quality dividend stocks across different sectors of the economy for you to choose from. Among the industries, the Canadian energy sector can be an excellent space to consider for dividend stocks.
Canadian energy sector stocks are a critical component of the Canadian stock market, accounting for about a fifth of the market. Buying and holding some energy stocks in a diversified self-directed portfolio can be a good way to create a solid passive income stream. With the ongoing turmoil in the stock market, several of the biggest names trade at discounted levels.
Buying and holding shares of energy stocks likely to post recoveries can be a stable way to generate returns through capital gains and dividend income. Today, I will discuss two of the top Canadian energy stocks that could warrant a place in your portfolio for this purpose.
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Enbridge
Enbridge Inc. (TSX:ENB) is a $96.2 billion market capitalization Canadian giant in the energy sector. The multinational pipeline and energy company headquartered in Calgary owns and operates an extensive network of pipelines throughout Canada and the US. Its infrastructure is responsible for transporting a big chunk of the energy products used in North America, making it vital to the region’s economy.
For income-focused investors, Enbridge is a gold mine in the energy industry. It has paid its investors their shareholder dividends for the last 70 years, 27 of which saw consecutive dividend hikes.
The company has built a solid network of energy transmission and distribution pipelines that are difficult to replace or compete with, putting it in a commanding position in its industry.
As of this writing, Enbridge stock trades for $47.73 per share, boasting a juicy 7.44% dividend yield. Since the world is effectively moving away from traditional energy products, Enbridge is also future-proofing itself by increasing its investments in the renewable energy space.
Until green energy constitutes a significant portion of its revenues, it can continue relying on the strong demand for fossil fuels to grow shareholder value.
TC Pipelines
TC Pipelines (TSX:TRP) can be another smart stock to consider investing in for dividend income in the Canadian energy sector.
Like Enbridge, it has been paying its investors their shareholder dividends for a long time, with over two decades of dividend hikes. The $50.4 billion market capitalization company also has an extensive energy infrastructure under its belt that places it in a strong position in the Canadian energy industry.
As of this writing, TC Pipelines stock trades for $49.10 per share, boasting a 7.58% dividend yield. Despite trading at an over 25% discount from its 52-week high, its management has good news.
Its recent sale of an interest in some of its US-based assets allowed the company to shore up its balance sheet with around $5.2 billion coming from the sale.
To future-proof itself, TC Pipelines also intends to spin off the oil pipeline business, selling some of its Canadian assets to boost its capital position for that purpose.
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Foolish takeaway
Due to a decline in share prices, several energy stocks offer payouts to investors at inflated dividend yields. Identifying and investing in dividend stocks well-positioned to continue paying shareholders their dividends can be a savvy way to unlock a passive income stream in your self-directed portfolio. To this end, Enbridge stock and TC Pipelines stock can be worthy investments to consider.
