If you’re serious about making an investment that keeps paying you long after you’ve stopped working, then dividend investing should ideally be part of your strategy. Whether you’re aiming to fund early retirement or just cover monthly bills with minimal effort, choosing the right dividend stocks can make all the difference. This is mainly because not all of them offer the stability, consistency, and long-term fundamentals needed to support a reliable income through different market cycles.
That’s exactly where Canadian energy stocks like South Bow (TSX:SOBO) come into play. After its spin-off from TC Energy nearly a year ago, South Bow is consistently delivering stable performance, solid dividends, and strong cash flow — all backed by long-term contracts and essential oil transport assets. Let me explain why South Bow could help you build a strong foundation for lifelong passive income.
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A top Canadian energy stock for passive income
As a Calgary-based energy infrastructure firm, South Bow owns and operates a 4,900-kilometre pipeline network across Canada and the U.S., connecting Alberta’s oil sands to key American refining markets.
At the time of writing, SOBO stock was trading at $36.50 per share, with a market cap of $7.6 billion. At this market price, it offers a really juicy 7.6% annualized dividend yield, paid out quarterly.
While its attractive yield alone makes it appealing for income investors, what sets it apart is the predictability that comes with its robust business model. Notably, about 90% of its normalized EBITDA (earnings before interest, taxes, depreciation, and amortization) is secured under long-term contracts. This allows South Bow to deliver stable cash flow, no matter what’s happening with oil prices or the broader economy in the short term.
A resilient performance, despite a tough environment
In the second quarter of 2025, this energy firm generated US$524 million in revenue and posted a net profit of US$96 million. While the quarter marked a slight sequential drop in its normalized EBITDA due mainly to weaker contributions from its marketing segment, its overall financial results still held up well.
South Bow’s normalized EBITDA for the quarter came in at US$250 million, with over US$234 million of that coming from its core Keystone Pipeline System. Meanwhile, the company reported distributable cash flow of US$167 million, enough to easily cover the US$104 million in dividends it declared for the quarter.
Strong foundation for future growth and income
Besides its largely predictable cash flows, South Bow’s long-term strategy makes it an even more dependable stock. Unlike companies chasing high-risk growth, it’s primarily focused on maximizing shareholder value with a clear, disciplined approach.
It’s investing in projects like the Blackrod Connection, which will increase connectivity within Alberta’s oil sands and is expected to be completed by early 2026. The expected cash flows from this project alone could drive the company’s earnings momentum well into 2027.
To minimize risks, South Bow plans to gradually reduce its leverage over the next three years, with a target to bring its net debt-to-EBITDA ratio down to four. That move, combined with its focus on capital efficiency and infrastructure-led growth, gives the company more room to sustain or even increase its dividend over time.
Foolish takeaway
Interestingly, over 96% of South Bow’s revenue comes from investment-grade clients, giving it more of a utility-like feel than a typical energy stock — just with a much higher dividend yield. So, if you’re looking for an energy stock that can pay you for life without much risk, SOBO stock might just be worth buying in right now.
