2 Top Energy Stocks to Make Passive Income for Decades

The Canadian energy sector has a generous number of dividend payers, some of which are worth holding onto for decades for a consistent passive income.

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oil and natural gas

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Canada’s sizable energy sector is naturally a result of its heavy dependence on oil and gas. Many of its largest publicly traded companies are energy giants (mostly midstream and upstream/integrated). A handsome proportion of these energy companies also pay dividends, and some have long and stellar histories of dividend growth, making them ideal long-term dividend holdings.

Even if we exclude the Aristocrats, there are plenty of dividend payers in the energy sector that you may consider keeping in your portfolio for decades.

Largest natural gas producer in Canada

Tourmaline Oil (TSX:TOU) is Canada’s largest natural gas producer by a sizable margin. It also ranks third when it comes to liquid production (second in condensate). Considering its massive drilling inventory (around 75 years as per the current estimate), the company could retain its position as one of the largest energy producers in Canada for decades to come.

But it’s not just the production scale that makes it an impressive energy stock pick. Over three-quarters of the company’s total energy production is natural gas, and this fossil distribution is in the company’s favour since natural gas is the cleaner of the two and might be more resilient against the green shift that has started to impact energy sectors worldwide.

When you start evaluating Tourmaline as a dividend stock, you might notice two things. The first is its relatively low yield of 1.9%, and the second is the inconsistency of the payouts. The low yield can be attributed to the company’s powerful growth phase post-pandemic, which pushed its five-year returns to over 395%.

As for the payouts, the company’s basic dividends have grown at a powerful rate — about 2.5 times in the last five years. The inconsistent part is the special dividends, which fluctuate a lot based on market conditions.

Second-largest natural gas producer in Canada

Canadian Natural Resources (TSX:CNQ) is the second-largest natural gas producer in Canada and one of the largest independent upstream companies in the country.

It has an impressive portfolio of assets and the largest oil and natural gas reserves in Canada, with a proven life index (of the reserve) of over three decades. Over half of its total reserves are in highly desirable energy commodities, like light crude and natural gas liquids (NGLs).

One of the most robust cases that can be made for this investment is its consistency. Few Canadian energy giants have been as resilient against market crashes and sector-wide slumps as Canadian Natural Resources. The company also enjoyed (and is still enjoying) an epic post-pandemic growth phase that pushed its value up by 177% in the last five years.

This hasn’t been great for the yield, which has slumped to 2.1% now. But if you take its 22 consecutive years of dividend growth and rock-solid payout ratio history into account, it is one of the best long-term dividend picks from the energy sector.

Foolish takeaway

The two energy giants have decades of reserves and production capacity left and unless the demand slacks quite rapidly, they may continue to enjoy consistent revenues and keep rewarding their investors with dividends. Canadian Natural Resources is also highly likely to retain its title as an Aristocrat, considering its stable performance, financials, and impressive dividend history.

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 Tourmaline Oil. The Motley Fool has a disclosure policy.

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