Canadian Investors: 2 TSX Energy Stocks to Buy for Passive Income

Energy is one of the heaviest sectors in Canada and has some of the most generous and trusted dividend payers of the TSX.

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The capped energy index in Canada rose by about 330% in 20 months, spread out over November 2020 and June 2022. This was the most glorious bull-market phase the sector saw in decades, and after a brief correction period, it has remained moderately bullish till now.

As a result, most investors flocking to the energy sector are doing so because of the growth potential its constituents offer, while dividends have taken second place.

However, that doesn’t mean that the dividend potential of the sector has weakened in any way. There are still plenty of great dividend picks in the TSX energy sector, and two should be on your radar now.

An energy producer

Canadian Natural Resources (TSX:CNQ) is one of the region’s largest oil and gas producers, with an impressive portfolio of energy assets around the globe. Its energy reserves are massive, and it is currently the only company in the country with five billion barrels of oil equivalent (BOE) reserves.

And since the bulk of its oil reserves are in oil sands instead of shale oil, the reserve life is roughly four times longer than its global, shale-heavy peers.

Its natural gas reserves are just as impressive as its crude oil portfolio, the largest in Canada. As the cleaner of the two fossil fuels, the demand for natural gas will likely remain high for longer than crude.

Canadian Natural Resource stock is incredibly resilient, which is quite impressive for an upstream company directly impacted by energy price fluctuations. It was one of the few giants who fully recovered from the 2014 slump before the post-pandemic bull run.

Its dividend-growth streak is also quite attractive at 22 years of consistent growth. The payout ratios remain stable as well, and the yield, while not too generous, is decent enough at 3.9%.

A pipeline giant

Midstream giants like Enbridge (TSX:ENB), who transport the energy produced by upstream companies like Canadian Natural Resources, are not as vulnerable to price fluctuations as upstream or downstream companies — i.e., those selling energy products to the end-users.

The reason is that their revenues are tied to contracts with energy companies that are usually long term, so even if the oil prices go down, their fees and, by extension, revenues may remain relatively consistent.

Enbridge has enhanced this strength by diversifying its business model to include an even safer business avenue — i.e., utilities. It’s one of the largest utility companies in the region, catering to nearly five million clients’ natural gas needs in the U.S. and Canada.

As a dividend payer, not only is Enbridge highly generous with an impressive 7.5% yield, but it also has a solid dividend history with 29 years of consecutive dividend growth. The business model and its dividend strengths make it an ideal pick for passive income.

  • We just revealed five stocks as “best buys” this month … join Stock Advisor Canada to find out if Canadian Natural Resources made the list!

Foolish takeaway

The two energy stocks can be great picks for passive income, not just from the energy sector but also from the TSX as a whole. They offer healthy yields and have long and consistent histories of dividend growth. So, the income they produce may keep pace or even remain ahead of inflation.

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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends Canadian Natural Resources and Enbridge. The Motley Fool has a disclosure policy.

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