TFSA Investors: The Best TSX Energy Stocks for Fast-Growing Passive Income

When your goal is to develop a passive-income stream that can keep pace with inflation, year-on-year dividend growth is a variable you have to look into.

| More on:

When you are developing a passive-income stream in your Tax-Free Savings Account (TFSA), since it’s the ideal account for this purpose for most Canadians, there are several factors you have to take into account.

Dividend yield and sustainability are two obvious factors, but if you want your dividend-based income stream to keep pace with (or outpace) inflation, you are limited to Dividend Aristocrats. And even in this select pool of assets, you have to look into dividend growth — i.e., how fast and consistent it is. A fast-growing passive income can serve you well in the long term.

Energy is one of the few sectors in the Canadian stock market that has a decent concentration of Dividend Aristocrats, and three of them might help you develop a passive income that’s growing at a good pace.

A senior natural gas and oil producer

Canadian Natural Resources (TSX:CNQ) is an upstream giant with an impressive portfolio of assets. It has the largest natural gas reserves in Canada and about 32 years of proven reserve life index.

If we combine that with its stellar payout ratio and payout ratio history, the company checks most of the sustainability boxes. It’s also a very resilient stock that survived the 2014 crash better than many energy companies in Canada.

Thanks to a powerful bullish phase that has persisted from the last quarter of 2020, the stock has risen over 150% in the last five years (including the 2020 crash).

The 3.8% yield is still decent enough, especially considering the fact that the company has more than doubled its payouts since 2019. Unless the demand for oil and natural gas starts slacking significantly, the company may continue to raise its payouts at a powerful pace in the coming years.

A Colombia-based natural gas and oil producer

Parex Resources (TSX:PXT) does the same thing that CNQ does, albeit on a small scale. With $2.88 billion in market capitalization, Parex Resources is a much smaller company, and its dividend history is too short to be compared with an Aristocrat’s.

The company has only started paying dividends in 2021. But there are four reasons why you should consider adding this energy stock to your TFSA-based passive-income portfolio.

The first reason is the dividend, which offers a healthy combination of yield (5.4%), payout ratio (sustainability), and growth. The company has grown its payouts by three times in the last three years from $0.125 in 2021 to $0.375 in 2023.

The second reason is its position in Colombia. As the largest independent oil and natural gas company in Colombia, it dominates a growing economy. The third reason is its current undervaluation. The performance of the stock is the fourth reason. It’s resilient enough to grow well past the circumstances that have crushed energy companies of the same scale operating in Canada (like the 2014 crash).

  • We just revealed five stocks as “best buys” this month … join Stock Advisor Canada to find out if Parex Resources made the list!

Foolish takeaway

The two energy stocks are powerful picks when it comes to dividend growth, but that’s not their only strength. Compared to many other energy stocks, they offer strong resilience against weak market conditions and a decent capital-appreciation potential in a healthy market.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends Canadian Natural Resources and Parex Resources. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Canadian dollars are printed
Dividend Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Toronto-Dominion Bank (TSX:TD) stock could do well in the year ahead.

Read more »

monthly desk calendar
Dividend Stocks

Monthly Income: Top Dividend Stocks to Buy in November

Here are two of the best monthly dividend stocks in Canada you can buy in November 2024 and hold for…

Read more »

profit rises over time
Dividend Stocks

These 2 Dow Stocks Are Set to Soar in 2025 and Beyond

Two Dow Jones stocks are screaming buys but Canadians must hold them in an RRSP or RRIF to avoid paying…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Use Your TFSA to Earn Ultimate Passive Income

If you have a TFSA, then you have the key to creating ultimate passive income. All you need is a…

Read more »

Confused person shrugging
Dividend Stocks

Better Buy: Fortis Stock or Hydro One Stock?

Let's do a compare and contrast of these two top utilities stocks right now, shall we?

Read more »

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."
Dividend Stocks

Boost Your Passive Income: 2 Canadian High-Yielders at a Bargain

Nutrien (TSX:NTR) stock and another play that appear like fantastic dividend bargains in mid-November.

Read more »

3 colorful arrows racing straight up on a black background.
Dividend Stocks

TSX Stocks Soaring Higher With No Signs of Slowing

Three TSX stocks continue to beat the market and could soar higher in an improving investment landscape.

Read more »

Hourglass and stock price chart
Dividend Stocks

Goeasy Stock: Is It Heading for a 52-Week High?

Goeasy stock has been edging higher, especially after another record-setting earnings report. So are 52-week highs in sight?

Read more »