For dividend investors, everything starts with free cash flow—the money left over after a company covers its operating and capital expenses. Sectors that consistently generate free cash flow are naturally better suited for reliable dividend payments.
Real estate, for instance, turns rent into predictable income, while utilities earn steady cash from regulated rates. In contrast, sectors like technology or retail often reinvest heavily in growth, leaving less to distribute to shareholders.
One sector that’s been unloved this year is energy. Oil and gas stocks have slumped as crude struggles to stay above US$60 per barrel, pressured by tariffs, geopolitical uncertainty, and weaker demand forecasts.
But that weakness has opened the door for income investors. Energy companies are still generating substantial free cash flow, and with share prices low, yields look more attractive than they have in years. Here are two TSX-listed energy exchange-traded funds (ETFs) that pay above-average dividends and provide simple, diversified exposure to the sector.
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Equal weight oil and gas
BMO Equal Weight Oil & Gas Index ETF (TSX:ZEO) is my preferred “buy them all” option for investors who want balanced exposure to Canada’s energy sector, with a focus on large- and mid-cap companies.
I prefer this ETF over competitors tracking the more traditional S&P/TSX Capped Energy Index, which, despite its 25% holding cap, is still dominated by just two large producers that make up nearly half the index.
ZEO, by contrast, equally weights its 12 holdings, spreading risk evenly across major explorers, producers, and pipeline operators. It’s a more diversified way to own the full Canadian energy supply chain in one ETF.
The fund charges a 0.60% expense ratio and currently pays a 3.55% distribution yield, with quarterly payouts. Most of those distributions qualify as eligible dividends, with some return of capital, making it reasonably tax efficient outside a registered account.
Midstream pipelines
If you prefer less exposure to the ups and downs of oil prices, consider Global X Equal Weight Canadian Pipelines Index ETF (TSX:PPLN).
This ETF focuses purely on midstream companies, which operate the infrastructure that transports and stores oil and natural gas. In Canada, that means exposure to the country’s five major pipelines operators, all in one package.
PPLN offers a 3.18% trailing 12-month yield with monthly distributions, making it attractive for steady income seekers. It’s also fee-free until December 31, 2025, with its 0% expense ratio waived since April 8, 2024.
