Do you have $10,000? Buy this dividend stock for $55 in monthly passive income

The Toronto Stock Exchange is enjoying stronger momentum at the start of the year than it will be in 2025. In terms of performance, the technology sector has been the biggest drag on the Index so far; energy stocks have been on the rise lately. If you have $10,000 to invest, forget about the high-growth sector for now and focus on income investing instead.

While both the technology and energy sectors experience volatility, Surge energy (TSX:SGY) can provide immediate 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 the technology sector (-23.8%). The small-cap share pays a hefty dividend of 6.6%. Furthermore, the payout frequency is monthly and not quarterly.

A $10,000 investment produces $55 monthly passive income ($660 per year). The approximately 1,346 shares are converted into recurring income, while the principal remains intact. In a Tax-Free Savings Account (TFSA), you pay zero tax on dividend income.

Repeatable business strategy

Surge Energy operates two of Canada’s five largest conventional oil growth companies, Sparky & SE Saskatchewan. The $781.7 million oil-focused exploration and production (E&P) company is developing high-quality conventional oil reservoirs. According to management, it is a repeatable business strategy designed to maximize free cash flow (FCF) and shareholder returns.

Because 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 company production) that do not require huge capital expenditures.

By utilizing modern multilateral drilling technology, Surge realizes significant savings that help meet its dividend obligations. Currently, the company returns approximately $51 million annually to shareholders through a dividend base of $0.52 per share (paid monthly).

Shareholder return machine

Through the first three quarters of 2025, Surge generated more than $104.9 million in free cash flow due to lower net operating expenses and lower-than-budgeted exploration and development expenditures. The excess free cash flow was used to reduce debt. Net income in the same period was $47.4 million, compared to a net loss of $51.1 million a year ago.

For 2026, Surge will refocus on returns and improving FCF while managing risk. The guidance for the sustainably oriented capital budget of $150 million, at $65 per barrel of West Texas Intermediate oil, is $245 million cash flow from operations and $95 million FCF, respectively. The FCF margin should be 36%.

Global crude oil inventories remain near their lowest levels, although the International Energy Agency (IEA) predicts oil demand will rise this year. Surge Energy said rising geopolitical tensions could increase the likelihood of supply disruptions and price volatility. This uncertainty, along with compelling oil market fundamentals, supports higher crude oil prices in the coming months.

The oil price war and global pandemic in 2020 prompted Surge Energy to temporarily suspend dividend payments. However, when the company reinstated the dividend policy in July 2022, the company switched to a monthly payment model. SGY’s dividend has grown annually since the restoration.

Predictability of the dividend

Surge Energy’s fixed monthly dividend schedule provides a degree of predictability. More importantly, dividends are rising. The return on capital framework also links debt reduction to dividend increases and share buybacks. Future dividend increases are possible if debt targets are met. Meanwhile, your $10,000 investment today secures your monthly income.