One of the best benefits of investing in stocks is the fact that you can earn significant and consistent passive income, especially if you buy these stocks in your Tax-Free Savings Account (TFSA). Although stocks in many sectors provide attractive passive income, energy stocks are often some of the best stocks to buy and hold for years if you’re looking to boost your passive income generation.
The key for investors is to understand which stocks are the best to buy and which offer the most robust passive income. For example, some energy stocks, like producers, can offer high dividend yields, but they’re exposed to the price of oil and gas, which can have benefits when the price of energy is rising but also pose risks when the price of oil and gas is selling off.
Meanwhile, other companies in the energy sector, such as energy infrastructure stocks or utilities, can often provide much more stable passive income but may not necessarily offer the same long-term growth potential.
So, it’s essential to find stocks that offer a mix of both compelling and reliable passive income with the potential to grow at an appealing pace.
With that in mind, if you’re looking to boost your passive income and buy some of the top energy stocks on the TSX today, here are two of the best that you can invest in today and plan to hold for years to come.
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A top energy dividend stock to buy now and hold for years
When it comes to energy stocks that offer compelling passive income, a royalty company like Freehold Royalties (TSX: FRU) is one of the best to consider.
Freehold earns revenue by acquiring energy-rich land in Canada and the United States that other energy companies use to produce oil and gas in exchange for a royalty.
Because of this business model, there is much less risk for Freehold, which doesn’t have to spend anywhere near as much as a traditional energy producer yet can benefit from the same tailwinds that the energy sector experiences.
Therefore, Freehold is constantly generating significant cash flow. This cash stream is what allows it to pay such an attractive dividend while also keeping that dividend sustainable and leaving itself plenty of leftover cash to invest in acquiring more land and growing the royalty income it receives.
Plus, in recent years, Freehold has focused on diversifying its land acquisitions, especially south of the border, to improve the geographical diversification of its revenue streams. This strategic move helps mitigate regional risks and enhances the stability of its income, making Freehold Royalties an even more reliable source of passive income for investors.
For example, in 2023, Freehold earned more than $206 million of free cash flow, yet it only paid out $162 million in dividends, demonstrating the sustainability of its dividend and leaving cash left over to invest in future acquisitions.
Therefore, while Freehold trades near the bottom of its 52-week range and offers investors a yield of roughly 8.1%, it’s certainly one of the best energy stocks to buy now if you’re looking to boost your portfolio’s passive income generation.
A top energy infrastructure stock offering a yield of 4%
In addition to Freehold, another excellent energy stock to buy now and hold for years is AltaGas (TSX: ALA). AltaGas has both midstream and utility operations, making it one of the most reliable stocks in the energy industry while also providing the potential for higher returns than you would normally expect from a traditional utility company.
Plus, in recent years, AltaGas has divested some of its non-core assets and improved its financials while also investing in new growth projects that will help bring Canadian energy to Asian markets. This strategic move has resulted in attractive long-term growth potential to complement its reliable utility segment earnings.
So AltaGas offers the best of both worlds. It earns safe and reliable cash flow from its utility segment, with the potential to see a significant uptick in earnings from its rapidly growing midstream segment, making it one of the best energy stocks to not only buy today but also to hold for the long haul.
