The Canadian stock market is always filled with opportunities for dividend investors seeking to earn reliable monthly passive income. Even as macroeconomic uncertainties have negatively affected investors’ sentiments lately, some fundamentally strong monthly dividend stocks continue rewarding loyal investors with handsome dividends.
In this article, I’ll talk about one of the best Canadian monthly dividend stocks from the energy sector you can add to your portfolio right now to earn high returns on your investments.
A Canadian monthly dividend stock with an 11.5% dividend yield
When you’re investing in stocks for the long term, you should ideally try to avoid picking penny stocks with weak financial positions that have higher chances of discontinuing their dividends in a difficult economic environment.
Keeping that investing principle in mind, Peyto Exploration & Development (TSX: PEY) could be an attractive monthly dividend stock to invest in right now. This Calgary-headquartered energy firm currently has a market cap of about $2 billion and is one of the largest natural gas producers in Canada.
After delivering an eye-popping 375% positive return in the previous two years, PEY stock now trades at $11.48 per share with about 17.2% year-to-date losses. At this market price, this stock offers an attractive 11.5% annual dividend yield and distributes its dividend payouts every month.
A stable business model with strong financial growth
One of the key factors that make Peyto Exploration’s business model so attractive is its consistent focus on acquiring long-reserve-life assets and low-cost production with a returns-focused strategy. These strengths also showcase in its long-term financial growth trends. To give you an idea, in the five years between 2017 and 2022, the company’s total revenue rose 56% from $727 million to $1.1 billion. To add optimism, its adjusted yearly earnings jumped 108% during the same period from $1.07 per share to $2.23 per share.
A post-pandemic era rally in oil prices also helped Peyto’s expand margins. In 2022, the company reported a solid adjusted net profit margin of 34.5%, massively higher than its margin of 24.3% five years ago.
Other factors to consider before buying this stock
Although Peyto’s has a robust business model with a strong financial position, before investing in it, you must also learn about key risk factors that its business is exposed to. Just like most other energy companies, weak oil and gas prices have the potential to affect Peyto Exploration’s profitability.
For example, its free funds flow fell 3.4% from a year ago to $58 million in the first quarter of 2023 due mainly to a recent decline in commodity prices. While lower capital expenditure helped the company offset some of the negative impacts of weaker commodities, its adjusted quarterly earnings still slipped 8.9% year over year to $0.51 per share.
That said, the long-term outlook for oil and gas prices still looks strong due to an expected increase in global demand in the coming years, despite ongoing concerns over slowing economic growth.
Bottom line
While Peyto Exploration & Development might not be the safest Canadian stock to buy, its solid dividend yield and strong financial growth trends make it worth considering, especially if you want to create a source of handsome monthly passive income. In addition, recent declines in its share prices make it even more attractive to buy now and hold for the years to come.
