The Toronto Stock Exchange is enjoying stronger momentum to start the year compared to 2025. Performance-wise, the technology sector has been the Index’s primary drag thus far; energy stocks have been surging lately. If you have $10,000 to invest, forget the high-growth sector for now and focus on income investing instead.
While both the technology and energy sectors face volatility, Surge Energy (TSX: SGY) can deliver instant cash flow in the current environment. At $7.43 per share, SGY is up 8.3% year to date, outperforming the broad market (+2.4%) and tech sector (-23.8%). The small-cap stock pays a hefty 6.6% dividend. Moreover, the payout frequency is monthly, not quarterly.
A $10,000 investment will produce $55 in monthly passive income ($660 annually). The approximately 1,346 shares transform into recurring income, while keeping the principal intact. In a Tax-Free Savings Account (TFSA), you pay zero taxes on dividend income.
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Repeatable business strategy
Surge Energy operates in two of Canada’s top five conventional oil growth plays, Sparky & SE Saskatchewan. The $781.7 million oil-focused exploration and production (E&P) company develops high-quality conventional oil reservoirs. According to management, it is a repeatable business strategy intended to maximize free cash flow (FCF) and shareholder returns.
Since the core areas where Surge operates have extensive crude oil reserves, the E&P company can keep costs low and maintain high dividends. The Sparky and SE Saskatchewan are repeatable plays (92% of corporate production) that don’t require massive capital spending.
By using modern multilateral drilling technology, Surge derives significant savings that help fulfill its dividend commitments. Currently, the company returns about $51 million annually to shareholders through the dividend base of $0.52 per share (paid monthly).
Shareholder-return machine
In the first three quarters of 2025, Surge generated over $104.9 million of FCF on account of lower net operating expenses and lower-than-budgeted exploration and development expenditures. The excess FCF was used to reduce debt. Net income in the same period reached $47.4 million compared to the $51.1 million net loss from a year ago.
For 2026, Surge will again focus on returns and enhancing FCF while managing risk. The guidance for the $150 million sustainably oriented capital budget, at US$65 per barrel of West Texas Intermediate oil, is $245 million cash flow from operating activities and $95 million FCF, respectively. The FCF margin should be at 36%.
Global crude inventories remain near their lowest levels, although the International Energy Agency (IEA) forecasts oil demand to rise this year. Surge Energy said the growing geopolitical tensions could increase the possibility of supply disruptions and price volatility. This uncertainty, along with compelling oil market fundamentals, supports higher crude prices over the coming months.
The oil price war and global pandemic in 2020 prompted Surge Energy to temporarily suspend dividend payments. However, when it reinstituted the dividend policy in July 2022, the company transitioned into a monthly payment model. SGY’s dividend has grown yearly since restoration.
Dividend predictability
Surge Energy’s fixed monthly dividend schedule provides a level of predictability. More importantly, dividends are growing. The return of capital framework ties debt reduction with dividend increases and share buybacks, too. Future dividend hikes are possible if debt targets are achieved. Meanwhile, your $10,000 investment today secures your monthly income.
