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

This small energy stock has raised its dividend by 200% in 24 months. Suncor is increasingly friendly to its passive-income-oriented stock investors, too.

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Canadian energy stocks took to dividend raises and share repurchases to distribute wealth to shareholders as climate change activism reduced enthusiasm for growth investments in “dirty” oil. However, the world’s economic demand for oil remains strong, even as electric vehicle uptake grows and green energy production expands. Thus, dividend-paying energy stocks could be great sources of dividend raises and fast-growing passive income.

Income-oriented investors could boost the passive-income-generating power of their Tax-Free Savings Accounts (TFSAs) by investing in Suncor Energy (TSX:SU) stock and Parex Resources (TSX:PXT) stock for their currently high dividend yields, their respective management teams’ commitment to distribute more cash flow to investors, and the businesses’ potential to raise dividends in 2024 and beyond.

Let’s have a closer look at how Suncor stock and Parex Resources stock should belong in your TFSA’s passive-income-oriented portfolio.

How Suncor stock can boost a TFSA’s passive income

Suncor Energy is playing catchup on dividend raises following a blip encountered in 2020. The $58 billion integrated energy stock has raised its quarterly dividend by 148% from 2020-21 levels. Dividend investors have more than recovered on their quarterly payouts following an unfortunate 55% dividend cut in 2020. They may earn more passive income on SU stock as the dividend, which yields 4.6% annually, grows.

Suncor’s new leadership is keen on pleasing a shareholder base after falling off the Canadian dividend aristocrats list. Significantly huge dividend raises could be the norm if oil prices continue to cooperate.

Suncor’s planned acquisition of TotalEnergies’s Canadian assets for $5.5 billion, which was announced in April, was foiled by ConocoPhillips’s decision to exercise its right of first refusal on TotalEnergies’s 50% stake in Surmont oil sands assets in May. Suncor’s acquisition plan included a 10% dividend raise as a bonus to SU stock investors upon closing. Nonetheless, all hope isn’t lost for dividend investors betting on Suncor’s continued dividend raises for fast-growing passive income.

In October, the company recently announced an acquisition of Total Energiess’ 31% stake in the Fort Hills project for less than $1.5 billion to gain full ownership and control of the bitumen production asset. The additional stake adds long-life bitumen supply to maximize utilization of Suncor’s upgraders at the Base Plant beyond the estimated mine life of a nearby mine, extends projected cash flows further into the future, unlocks additional synergies and unit-cost savings, and enhances Suncor’s room for dividend raises.

Suncor’s balance sheet is strong and recent restructuring exercises reduce operating costs and enhance its free cash flow generation capacity — expanding the room for management to raise dividends for 2024.

Management could do better than a 6% dividend raise for 2024.

Parex Resources raised dividends by 200% in 24 months

Parex Resources is a $2.7 billion cheaply valued oil and gas mining stock that recently initiated regular dividend payouts in 2021 and has raised its quarterly dividend by 200% over the past 24 months.

The company paid a $0.125 dividend per share to PXT stock investors back in September 2021. It subsequently raised the payouts to $0.375 for each of the first three quarters of 2024. The current Parex Resources quarterly dividend yields 5.9% annually. Given management’s commitment to enhancing shareholder returns, investors could get another raise in 2024 if oil prices remain firm.  

The oil and gas miner exports state-of-the-art production techniques used in Canada to its oil-rich Colombian assets. Productivity and Parex’s distributable cash flow are growing during a strong oil market.

The company expects to average production to grow from 52,049 barrels of oil equivalent per day (boe/d) in 2022 to between 54,000 and 57,000 boe/d this year. Bay Street analysts project a 25% surge in Parex Resources’s free cash flow for 2024 — management has room to raise the dividend again next year.

Moreover, the company prices its production at Brent Crude Index prices, which are usually at a premium to Canadian oil. The company has no long-term debt on its balance sheet, perhaps signalling low leverage risks.

Perhaps due to some mining jurisdiction-associated valuation discounts, Parex Resources stock trades at a cheap forward price-to-earnings multiple of four compared to an industry average multiple of 7.7.

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 Brian Paradza has no position in any of the stocks mentioned. The Motley Fool recommends Parex Resources. The Motley Fool has a disclosure policy.

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