Invest $21,000 in 1 Dividend Stock and Create $1,224 in Passive Income

This one dividend stock is a great option for those looking toward the future, with growth opportunities and dividends on deck.

| More on:
canadian energy oil

Image source: Getty Images

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

In the last three years, investors have had $7,000 available for their Tax-Free Savings Account. But in that time, if you haven’t invested, that $21,000 is just sitting there! Investing that cash into dividend stocks is a great way to build passive income and maximize the tax advantages that come with this account. With dividends earning tax-free returns in a TFSA, every dollar goes back into your pocket. While you can choose from a variety of stocks, Veren (TSX:VRN) stands out as a particularly promising option for long-term passive income.

Created with Highcharts 11.4.3Veren Inc. PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

Why Veren

Veren, trading at $8.03 at writing, offers an annual dividend yield of 5.8%. This means your initial investment would generate approximately $1,224 annually in dividends alone – completely tax-free in your TFSA. What’s remarkable about the oil and gas production company is its stability, backed by strong financials and robust operating cash flow of $2.2 billion over the trailing 12 months (TTM). This ensures the company can sustain and even grow its dividend over time.

Looking at its recent earnings as of the third quarter ending September 2024, VRN reported a profit margin of nearly 28% and an impressive operating margin of 44.4%. These metrics underscore the company’s efficiency and profitability. Despite economic fluctuations, the light oil producer’s revenue has remained strong at $3.9 billion. Plus, it boasts solid earnings before interest, taxes, depreciation and amortization (EBITDA) of $2.4 billion. While revenue growth has been modest at 1.2% year-over-year, its consistent cash flow and dividend payouts have made it a reliable choice for investors seeking stability.

VRN’s valuation metrics paint a compelling picture. The stock has a forward P/E ratio of 6.9. This suggests that it’s attractively priced compared to its earnings potential. Its price-to-book ratio of 0.72 indicates that the stock is undervalued, as it’s trading below its book value of $10.90 per share. This low valuation, coupled with its strong performance, creates an enticing entry point for investors looking to maximize returns.

Considerations

The stock has had a volatile year, with a 52-week range between $6.34 and $12.67. However, its recent upward trend signals investor confidence. With a beta of 2.7, VRN stock is more volatile than the market, but this also presents opportunities for growth when timed effectively. For long-term investors, this volatility could be an advantage, especially given its history of bouncing back strongly after market dips.

One of the standout features of VRN is its commitment to returning value to shareholders. With a payout ratio of 58.6%, the company strikes a balance between reinvesting in growth opportunities and rewarding its investors.

Looking ahead, VRN is well-positioned for growth. As its debt-to-equity ratio of 43.1% indicates, the company has managed its leverage effectively. Coupled with an enterprise value-to-EBITDA ratio of 3.8, this suggests the company is efficiently using its assets to generate earnings, thus making it an attractive investment for the long haul.

Bottom line

For investors who are just starting or those looking to optimize their TFSA contributions, the combination of tax-free dividends and potential capital gains makes VRN a compelling option. Even if you reinvest your dividends instead of withdrawing them, you could exponentially increase your returns over the years through the power of compounding.

All considered, allocating your TFSA contributions to VRN offers not only a strong dividend yield but also a stake in a company with solid financials, an undervalued stock price, and a clear commitment to shareholder value. As your dividends grow and your investment appreciates, you’ll find yourself inching closer to your financial goals with little effort. Proof that passive income truly can work for you.

Should you invest $1,000 in Healwell Ai right now?

Before you buy stock in Healwell Ai, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Healwell Ai wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

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 Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Energy Stocks

Investor wonders if it's safe to buy stocks now
Energy Stocks

Billionaires Might Sell U.S. Stocks and Buy This Canadian Stock to Avoid Tariff Risks

Billionaires might be worried about the future of U.S. stocks with the markets the way they are, and looking for…

Read more »

Offshore wind turbine farm at sunset
Energy Stocks

Got $500? Where I’d Invest it in This Green Energy Stock for Long-Term Sustainable Returns

This green energy company’s growing scale and focus on rewarding investors make it a top bet for investors looking for…

Read more »

golden sunset in crude oil refinery with pipeline system
Energy Stocks

TC Energy: Buy, Sell, or Hold in 2025?

TC Energy is up 30% in the past year. Are more gains on the way?

Read more »

golden sunset in crude oil refinery with pipeline system
Energy Stocks

Is Enbridge Stock (TSX:ENB) a Buy for its 5.9% Dividend Yield?

This solid dividend payer has the potential to help investors generate reliable passive income for decades.

Read more »

nugget gold
Dividend Stocks

Recession Stocks Are Back: Consider Buying the Dip This April

Recession stocks are back, and this one could be a solid winner.

Read more »

Person holds banknotes of Canadian dollars
Energy Stocks

Best Stock to Buy Right Now: Suncor vs Cenovus?

Suncor stock's 4.2% dividend yield vs Cenovus Energy's growth potential: Tariff-proof safety or growth gamble?

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

How to Earn $500/Month in Tax-Free Income With Your TFSA

Canadians can earn $500 or a desired tax-free income every month by saving and investing through the TFSA.

Read more »

how to save money
Energy Stocks

1 Canadian Stock Ready to Surge in 2025 and Beyond

This Canadian stock has seen significant growth, but more could come for 2025 and beyond.

Read more »