The S&P/TSX Composite Index showed a recovery at the beginning of the year. However, the collapse of two regional U.S. banks and pressure on Credit Suisse weighed on the investors’ sentiment, leading to the decline in Canadian stocks. The benchmark index that traded in the green erased all of its gains.
While the regulators stepped in to calm investors, the macroeconomic uncertainty and high interest rate environment indicate that the shares of even fundamentally strong companies could remain volatile, making it tough for investors to make capital gains.
Nonetheless, TFSA (Tax-Free Savings Account) investors can still earn a steady income from Canadian dividend stocks. The TSX has several high-quality stocks that consistently pay and increase dividends. Moreover, their payouts are well covered, implying that TFSA investors can easily rely on them. Further, due to the recent pullback in Canadian stocks, the yields of these dividend stocks look even more attractive.
Against this backdrop, let’s look at a top Canadian dividend stock that pays you monthly cash. Adding this stock to your TFSA portfolio could help generate steady, tax-free income, boosting your cash balance and enabling you to reinvest to create wealth. Let’s begin.
Top dividend stock paying monthly cash
Before I delve deeper into the stock, it’s important to highlight that dividends are not guaranteed. Therefore, investors must carefully choose a stock before investing. Along with dividend payment and growth history, one should focus on the company’s future earnings potential and cash flow-generating capabilities. This will ensure steady dividend income for years.
The integrated energy infrastructure company Keyera (TSX: KEY) is on such solid stock to generate reliable monthly cash. The company has consistently paid dividends for years. Further, this mid-cap company (market cap of approximately $6.53 billion) offers an attractive dividend yield of about 6.73% based on the closing price of $28.51 on March 19.
Why is Keyera a reliable income stock?
Keyera is an integral part of the energy value chain, which is why its assets witness high utilization. Furthermore, its energy infrastructure solutions are on a fee-for-service basis, enabling the company to generate steady distributable cash flows (DCF).
It’s worth highlighting that Keyera’s dividend payments are covered through its DCF. Its DCF/share increased at a CAGR (compound annual growth rate) of 7% since 2008. At the same time, its dividend increased by about 6% per annum. In addition, its dividend-payout ratio of 50-70% of the DCF is sustainable.
The steady demand for its energy infrastructure assets supported by fee-for-service and take-or-pay contracts will likely support Keyera’s earnings. Further, its KAPS pipeline system offers secure and long-term cash flow with 75% take or pay. The company expects its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) to increase at a CAGR of 6-7% through 2025, which will support its payouts.
Its focus on reducing debt (low leverage of 2.5 times of net debt/adjusted EBITDA), strong balance sheet, and growing earnings base will help Keyera to consistently enhance its shareholders’ value through buybacks and dividend growth.
Bottom line
If you buy about 628 shares of Keyera right now, you can earn $100 in passive income every month, or approximately $1,200 per year. To buy 628 shares of Keyera at the recent market price, one would have to invest about $17,900.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| KEY | $28.51 | 628 | $0.16 | $1,206 | Monthly |
While Keyera is undeniably a solid dividend stock to earn reliable tax-free passive income, investors must diversify their portfolios and should not invest all of their cash into a single stock.
