Building passive income through the stock market can be both rewarding and simple, especially if you focus on dividend-paying companies with strong fundamentals. One of the more compelling opportunities on the TSX right now is Headwater Exploration (TSX: HWX). With a reliable dividend and solid operations, it’s an energy stock that could help your portfolio do a lot of the heavy lifting. And if you’re sitting on $20,000 to invest, Headwater might be the perfect place to put it to work.
What you could make
Let’s break it down. Headwater Exploration is a junior oil and gas company that’s been gaining attention for its consistent returns and focused growth strategy. The passive income stock is currently trading around $5.79. It pays a quarterly dividend of $0.11 per share, which works out to an annual dividend of $0.44. That gives it a dividend yield of about 7.6%. So, what does that mean for your $20,000?
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|
| TSX:HWX | $5.79 | 3,454 | $0.44 | $1,519.76 | Quarterly | $20,000 |
Now, while the yield looks attractive on paper, the real question is whether it’s sustainable. Headwater has shown strong financial performance lately, which suggests the dividend isn’t just a flash in the pan. In the first quarter of 2025, the company reported net income of $50 million and adjusted funds flow from operations of $92.4 million. That gives it a healthy payout ratio of roughly 48%, meaning it’s using less than half of its cash flow to pay dividends. The rest can go toward expanding operations or strengthening the balance sheet.
Can it last?
Production volumes are also hitting new highs. The passive income stock continues to grow output from its core assets in Alberta, and it’s doing so with capital discipline. Headwater doesn’t carry a lot of debt, which is another key reason its dividend looks safe. Many junior energy companies run into trouble when debt piles up and commodity prices dip. Headwater has avoided that trap so far by keeping its finances in check and taking a measured approach to growth.
And then there’s the bigger picture. Oil prices are expected to stay relatively strong through 2025 due to ongoing geopolitical instability and OPEC’s tight production controls. That’s good news for Canadian producers like Headwater, especially those with lower break-even costs. As a smaller, more nimble operation, Headwater can adjust quickly to market conditions. That flexibility, combined with its strong cash generation, makes it an interesting long-term hold.
What to watch
Of course, no passive income stock is without risks. Oil and gas prices are notoriously volatile, and Headwater is still a relatively small player in a competitive space. If energy prices were to collapse or regulatory costs were to spike, the company’s earnings and dividends could be affected. But the current fundamentals paint a strong picture. As long as Headwater maintains its operational discipline, it has the potential to keep rewarding shareholders.
If you’re building a passive income portfolio, especially within a TFSA, Headwater could serve as a strong income anchor. That $1,519 in annual income may not sound like a fortune, but when it’s tax-free and reinvested over time, the compounding effect really starts to add up. And unlike high-yield investments that can feel shaky or overly complex, Headwater keeps things pretty straightforward. You invest, it pays a dividend, and you get the benefits.
Bottom line
The best part is you don’t need to overthink it. With $20,000 invested, you’re creating a passive income stream that can grow with time. If Headwater increases its dividend or the share price appreciates, your returns will only improve. In the meantime, you’ve added a dependable energy stock to your mix, one that offers both upside and income.
In the end, investing is about balance. A stock like Headwater won’t give you explosive growth overnight, but it can quietly build wealth in the background while you focus on the rest of your life. That’s the power of passive income, and why a $20,000 investment in HWX could be a smart move for long-term Canadian investors.
