It has been another rocky year for Canadian energy stocks. Despite the S&P/TSX Capped Energy Index being neutral over the year, it has had several +10% pullbacks and an equal number of rides back up.

The time to buy energy stocks is when they are out of favour

The good news is that you can use the volatility to your advantage. Most often, the best time to buy energy stocks is when they are beaten up and out of favour.

You need to buy against the market to maximize returns when investing in cyclical segments like energy. If you are looking for steady dividend income from this sector, here are three stocks for your radar.

An infrastructure stock with a big yield

Pembina Pipeline (TSX:PPL) gives you the best of both worlds when it comes to energy stocks. The stock yields 6% today. Its dividend income is largely protected by its contracted pipeline and midstream infrastructure revenue. As a result, its dividend is largely unaffected by fluctuations in energy prices.

However, the company does have an energy resale business. When prices rise, it tends to earn a spread that can quickly elevate earnings. This is a riskier business, but the company has helped enhance its earnings stability over the years.

Pembina has a great balance sheet that it can use to invest in more infrastructure (potentially a liquified natural gas terminal, more collection pipelines, or even Trans Mountain). While these opportunities are speculative, you can buy the stock for its attractive dividend while you wait for the growth to come.

A large cap with a variable dividend

Tourmaline Oil (TSX:TOU) is the largest natural gas producer in Canada. While this energy stock only earns a 1.88% base dividend yield, it has been paying substantial special dividends over the past few years.

There are many reasons to like Tourmaline. It has zero net debt on the balance sheet, a highly invested management team, great assets with long reserve lives, a low-cost operating model, and access to sell natural gas to top markets.

If Tourmaline continues to pay a $1 per share special dividend every quarter in 2024, it will equal an additional 6.8% dividend yield. That is a combined dividend yield of 8.7%. That is an attractive cash return from one of Canada’s best energy stocks.

A royalty and infrastructure energy stock

Topaz Energy (TSX:TPZ) is another way to play Canadian energy but in an indirect way. It is like a hybrid between Pembina and Tourmaline.

Topaz was spun out of Tourmaline a few years ago. Tourmaline packaged a mix of its production acreage and infrastructure assets (gas and water processing plants) into a royalty-focused yield.

Topaz has steadily been adding assets in some of Canada’s most productive basins. As a result, its EBITDA (earnings before interest, tax, depreciation, and amortization) has risen by about $300 million a year since 2022. It has been able to grow and maintain a very attractive balance sheet (0.6 times net debt to EBITDA).

The company yields an elevated 6.6% dividend today. Since its inception, it has increased its dividend six times for a 55% total increase. The company has an attractive low-risk growth profile. If you like energy and want some bigger dividends, this is a solid stock to hold in the longer term.