For those looking to earn passive income in their TFSA (Tax-Free Savings Account), TSX energy stocks are starting to look like an attractive option. Certainly, energy stocks have not been great long-term investments.
The fundamentals around TSX energy stocks are improving
However, the fundamentals around these businesses have really changed. Energy stocks have become concisely focused on better capital management. Elevated energy prices have enabled Canadian energy stocks to rapidly lower debt, reduce share count, and consolidate the sector.
Now, many TSX energy stocks are in the best financial/operational position in years. While they are not growing production rapidly, they are more efficient. These companies are very profitable when oil is over US$75 per barrel. Many have committed a large portion of their cash to be returned directly to reward shareholders.
Since these stocks are becoming cash cows, they can be a good complement to a dividend-focused TFSA portfolio. Here are three TSX energy stocks that have been growing their dividends at a rapid rate.
A top TFSA income stock
No discussion about dividend growth in the energy patch would be complete without Canadian Natural Resources (TSX: CNQ). Not many Canadian stocks have been able to grow their dividends by a 21% compounded annual growth rate for 23 years. For context, Canadian Natural’s dividend is up 2,300% from what it was in the year 2000.
Canadian Natural has compiled a portfolio of excellent long-term gas and oil assets. It has several decades of reserves. Its low-cost operating model means that it can earn substantial cash returns, even when oil prices fluctuate.
Today, CNQ stock yields 4.15%. Last year, it paid a nice $1 per share dividend. If oil prices continue to rise, there could be more special dividends and base dividend increases in 2024 and beyond.
A mid-cap with income upside
Another solid TSX energy stock for a TFSA is Whitecap Resources (TSX: WCP). While Whitecap doesn’t have the same dividend track record as CNQ, it has been growing its dividend aggressively recently. It just increased its monthly dividend to $0.0608 per share. That is an increase of 326% since the beginning of 2021.
Whitecap produces just over 150,000 barrels of oil equivalent/per day (boe/d). That puts it nicely in the mid-cap production category. It has a target to reach 200,000 boe/d over the coming five years.
The company has a conservative balance sheet, large oil inventories, and solid production growth. This should help support steady dividend growth in the years ahead. This TFSA stock yields an attractive 4.9% today.
An integrated energy player for a TFSA
Cenovus Energy (TSX: CVE) is another interesting dividend stock for a TFSA. It only pays a 2% dividend yield. However, it has grown its quarterly dividend from $0.0175 per share in 2021 to $0.14 per share today. That is a 700% increase in just three years.
Cenovus has both production and refining capacity across North America. It has had some operational problems with its refineries. However, most of those problems are behind it, and refining capacity is ramping up. With energy prices rising, it can generate a significant amount of excess cash.
Currently, the company has net debt of $6.3 billion. When it hits $4 billion, it plans to return 100% of excess cash flow back to shareholders. That means more dividend increases and potentially even special dividends ahead.
