Hillcrest Energy Technologies. (CSE: HEAT)
From concept to commercialization, Hillcrest is investing in the development of energy solutions that will power a more sustainable and electrified future.
Stocks that pay regular dividends over a longer period of time tend to be more popular on the TSX, including mining stocks, energy, utilities and bank stocks. And if you combine capital gains and passive income and want to see the value of your portfolio grow faster, energy stocks are a better choice.
Within the energy sector, a number of energy producers tend to be very profitable during periods of rising commodity prices, and are therefore also able to offer high dividend yields. However, these companies also tend to be more vulnerable to falling oil and gas prices. Other energy stocks, such as energy infrastructure stocks or utility stocks, tend to provide more stable passive income, but may have limited long-term growth potential.
For compelling and reliable passive income while seeing significant growth in capital gains, consider these two stocks below.
Freehold Royalties (TSX:FRU) earns its income by acquiring oil- and gas-rich parcels of land in Canada and the U.S., while other energy companies pay royalties to utilise the land to produce oil and gas. As a result of this business model, Freehold has much less risk of its own, not having to spend as much money as traditional energy producers, while benefiting from the upturn in the energy sector.
The ability to continually generate large amounts of cash flow has allowed the company to pay an attractive dividend while still maintaining its dividend sustainability and leaving a significant amount of surplus cash to invest in acquiring more land and increasing royalty income. In 2023, Freehold earned more than C$206 million in free cash flow, but it paid out only C$162 million in dividends, leaving the cash to invest in future acquisitions.
In recent years, Freehold has been focusing on diversifying its land acquisitions, a strategic move that has helped to reduce regional risk, improve revenue stability and make Freehold Royalties a more reliable source of passive income. It’s worth pointing out that Freehold’s current share price is near the bottom of its 52-week range, offering investors a dividend yield of 8.1%. Investors with some risk tolerance may consider buying this energy stock.
With both a midstream business and a utility business, AltaGas (TSX:ALA) is one of the most reliable stocks in the energy sector, along with the potential for higher returns than traditional utilities. In recent years, the company has improved its financial position by divesting a number of non-core assets, while also investing in new growth projects to help Canadian energy enter the Asian market. This strategic move has laid out attractive long-term growth potential that complements the earnings of its reliable utility division.
As a result, AltaGas is a win-win, with the ability to earn safe and reliable cash flow from its utility segment while also possessing the ability to generate significant earnings growth from its fast-growing midstream segment, making it not only one of the best energy stocks to buy right now, but also one of the best to hold for the long haul. AltaGas stock is currently trading near a 52-week high, offering a 4% dividend yield.
