Buy This 1 Top Dividend Stock for TFSA Safety

There are several strong reasons why Algonquin Power & Utilities Corp. (TSX:AQN)(NYSE:AQN) is a stock to buy and hold for the long-term.

| More on:
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Everyone makes financial mistakes. But it’s how one recovers from those mistakes that matters in the long-run. If you’ve had to rejig your Tax-Free Savings Account (TFSA) in the last few months, you’re certainly not alone.

But aside from paring away dead wood from a personal investment vehicle, what else can Canadians do to fix a TFSA? Let’s take a look at one of the country’s best stocks and find out.

A star stock for diversified energy investors

Algonquin Power & Utilities (TSX:AQN)(NYSE:AQN) is an increasingly popular play that fits a wide range of investment styles. On the one hand , AQN suits the strict passive income investor, adding to TFSA or building a Registered Retirement Savings Plan (RRSP). On the other, this name brings the potential for sustainable growth in the green economy.

What shareholders get with an AQN investment is access to a pair of solid subsidiaries: Liberty Power and Liberty Utilities. Liberty Power should be of especial interest to ethical investors, or those simply trying to the up their portfolio’s ESG (Environmental, Social, and Governance) score.

Either way, this stock is a top green power play for its involvement in hydroelectric, wind and solar power generation.

What makes AQN such a strong buy for a TFSA, though, is its “triple-ply” strategy applicability. Many energy stocks tend to cover only one or two themes in this space. But this name is a play for both energy production and utilities safety, plus its production segment checks the box for green power upside. These facets make for an attractive three-pronged play that satisfies several investment strategies at the same time.

A top pick tailormade for a TFSA

Meanwhile, access to AQN’s utilities arm makes sure that dividend investors are well-covered for the long-term by a solid, contractual revenue stream. Shareholders can rest easy with this regulated energy conglomerate providing backbone – and regular passive income – inside a TFSA.

One of the benefits of stashing a dividend heavy-hitter like this in a savings account is that those payments can be drawn on without tax consequences. That 4.5% dividend yield is also pretty well covered with a payout ratio of 78%.

The long-term investor packing a TFSA with forever stocks should therefore also add moderate dividend growth potential to the list of this name’s strong points.

AQN goes ex-dividend at the end of the month, though, so investors will have to buy before then to be in line for its next payment. It’s worth noting that the average integrated utilities dividend yield is 3.6% – lower than AQN’s distribution.

This makes this stock an outperformer in this regard. Other areas where AQN stands out from its peers are value for money and long-term growth potential.

This stock is a bargain given its 28% discount against fair value. Its P/E is just below the sector average, while its P/B is slightly above. The stock is trading 12% below its 52-week high, though, meaning that strict value investors may want to add this name to a watch list and wait f0r a pullback.

In terms of outlook, AQN might expect 38% annual earnings growth, while a high target of $28.60 suggests strong upside potential.

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 Victoria Hetherington has no position in any of the stocks mentioned.

More on Dividend Stocks

Woman has an idea
Dividend Stocks

2 Low-Risk Growth Stocks Paying Great Dividends

These top TSX dividend stocks give investors exposure to interesting growth opportunities.

Read more »

A person builds a rock tower on a beach.
Dividend Stocks

Got $300? 2 Simple TSX Stocks to Buy Right Now

These two simple TSX stocks have everything a long-term investor looking to dollar cost average into a position wants right…

Read more »

A golden egg in a nest
Dividend Stocks

Millennials: No Excuses! Start Saving for Retirement Right Now.

Millennials, we need to stop complaining and start bragging. We're great savers, so it's time to start investing in TSX…

Read more »

Value for money
Dividend Stocks

3 UNDERVALUED TSX Stocks to Buy in August

Here are some attractively valued TSX stocks for the long term.

Read more »

A young man throwing and catching his daughter above his head
Dividend Stocks

Parents: Double Your CCB Payments This Month!

Parents can use those CCB payments to their benefit and double them this year month after month -- no waiting,…

Read more »

stock market
Dividend Stocks

I’m Buying These 3 Resilient Stocks During a Bear Market

TD Bank stock is among the three stocks I'm buying to protect my portfolio from a bear market and to…

Read more »

edit Safety First illustration
Dividend Stocks

4 of the Safest Dividend Stocks on Earth Right Now

These dividend stocks offer up strong dividends, a cheap share price, and safety from growing, safe sectors of the market.

Read more »

A person builds a rock tower on a beach.
Dividend Stocks

Change Your Future: What to Hold in a TFSA in 2022

Holding dividend growth stocks in a TFSA long-term can change the financial futures of worried Canadians.

Read more »