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Churn Out Income in Your TFSA: Buy This 7% Yielding Dividend Stock

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Canada’s TFSA account allows investors to stash their money into a tax-free account where the benefits compound year after year, and unlike RRSPs, this money will never be taxed.

The cumulative TFSA allowance is currently $63,500 and the 2019 contribution allowance is $5,500.

Income producing stocks are perfect additions to your TFSA, particularly high-yield dividend stocks.

Stocks such as Cineplex Inc. (TSX:CGX), Canada’s leading film exhibition company that’s  slowly turning into more of an entertainment company offering much more than its legacy movie theatre experience.

At this point, Cineplex stock is an undervalued dividend stock that just keeps getting cheaper and cheaper.

It really is no surprise, as the landscape in which it operates has undergone a radical transformation that keeps on moving forward.

With online streaming services and subscription services such as Netflix, Cineplex has had to contend with a changing customer and a changing competitive profile of its business.

But through all this, Cineplex has responded brilliantly, hence the opportunity.

From the introduction of premium-priced theatre experiences to a revamping of its in-house food services options, and a focus on its Scene loyalty membership, Cineplex has been driving increased revenue per patron as well as increased brand loyalty.

Further to this, Cineplex has responded by diversifying into other, complementary businesses where it can leverage its brand and its expertise — businesses such as e-gaming, recreation rooms, and media.

So with all this, why am I recommending that this stock be added to your TFSA?

First, I know many of us want income.

Cineplex offers shareholders a 7% dividend yield — a dividend that is supported by abundant cash flows that have generated an average operating cash flow as a percent of revenue of 14%.

2018 free cash flow of $93 million is a significant improvement over 2017 and a snapshot of the cash flow generation capability of the company.

Second, uncertainty in Cineplex’s diversification efforts are subsiding, as is the capital investment necessary to pull of this plan.

Diversification efforts are bearing fruit, with the “other revenue” segment representing a full 25% of total revenue in the first nine months of 2018, with the amusement category revenues increasing 11%.

This, in effect, is increasing the long-term growth trajectory of the company.

In the next year or so, visibility should improve, as Cineplex’s diversification efforts will continue to show results, and these results will essentially be the test that the company has to pass.

In summary

Cineplex stock currently offers investors strong cash flows, a steady anchor in the movie exhibition business, and a fast growing presence in the lucrative e-gaming world.

Given the company’s increasing diversification, its strong cash flows and its growing presence in the e-gaming world, this entertainment stock is increasingly well positioned to capture the entertainment needs of the young and old, the millennials and the baby boomers.

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 Karen Thomas has no position in any of the stocks mentioned.

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