Passive Income Investors: This TSX Stock Has an 8% Dividend Yield With Monthly Payouts

This TSX stock benefits from operational excellence, which continues to drive the company’s strong results and dividend reliability.

| More on:
monthly desk calendar

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

For passive income investors, finding the right TSX dividend stocks is a constant battle. I mean, we obviously want the highest dividend yields possible, but we have to be careful. Because high yields are high for a reason. Our job is to figure out whether the risks are greater than the potential rewards.

Here’s a TSX stock that has an 8.1% dividend yield that I think is not only sustainable but also has the potential to grow.

A top natural gas TSX stock

Created with Highcharts 11.4.3Peyto Exploration & Development PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

Peyto Exploration and Development Corp. (TSX:PEY) is a key player in the Canadian natural gas market, with rising production and industry-low costs. The company’s operational excellence has driven it to survive and thrive in the cyclical ups and downs of the natural gas industry. This is a key point for those of us considering Peyto stock.

This resiliency has been made possible by Peyto’s top-quality assets, which can be found in one of Canada’s most prolific basins, the Alberta Deep Basin. It’s a basin that’s characterized by a high return production profile, with high recoveries and predictability. This means relatively low capital intensity and high returns.

Is this TSX stock’s dividend safe?

This is a question that should be on our minds when considering a stock like Peyto. So, let’s look into it.

The first thing to look for is dividend coverage. How much of Peyto’s cash flow and earnings is being paid out in dividends? This exercise brings good news for Peyto. In fact, Peyto’s payout ratio is 88%. This is an acceptable ratio, and it means that the dividend is covered by Peyto earnings – a good result.

Cash flow coverage is another key indicator of the sustainability of the dividend. In the first nine months of the year, cash flow from operations was $486 million. Total dividends paid were $193 million and capital expenditures totaled $338 million. This means that Peyto was $45 million shy of covering its capital expenditures and dividends. Not a great result, but read on, there’s more to the story.

Natural gas weakness

Canadian natural gas prices were exceptionally weak last year. This meant weaker-than-expected results from the likes of Peyto. But the company did manage well as hedging programs lessened the blow and allowed Peyto to achieve pricing that was almost four times higher than the market rate at the time. Furthermore, Peyto’s famously low-cost operations, which the company continues to drive lower, lessened the blow as well.

On the company’s latest earnings conference call, management expressed optimism regarding the future of the natural gas industry. Indeed, the natural gas market is experiencing a secular tailwind that can give us confidence in Peyto’s long-term future.

The future of natural gas

Essentially, the North American natural gas industry is opening up to global demand. And the demand for it is strong, as North America has the biggest natural gas reserves, which are high quality, low cost, reliable, and easily accessible. The liquified natural gas (LNG) industry has made this accessible to the world.

For certain, LNG Canada will help meet this demand. LNG Canada is located in Kitimat, British Columbia. This site offers many competitive advantages. For example, it boasts one of North America’s shortest shipping routes to Asia. With LNG Canada expected to start-up in the foreseeable future and Peyto’s use of hedging to reduce the risk of the business, I feel confident. Peyto’s dividend will likely provide monthly passive income for many years to come.

Should you invest $1,000 in Barrick Gold right now?

Before you buy stock in Barrick Gold, 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 Barrick Gold 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 Karen Thomas has a position in Peyto. 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 »