Yellow Pages (TSX:Y) might not be the first dividend stock that comes to mind when thinking about passive income for a Tax-Free Savings Account (TFSA). But it’s quietly become a compelling option. Once synonymous with thick business directories dropped on doorsteps, the dividend stock reinvented itself as a digital marketing firm serving small- and medium-sized businesses across Canada. While it’s not without its challenges, Yellow Pages has maintained profitability and now offers an impressive dividend yield — a yield that could make it a valuable addition to a passive-income portfolio.
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The numbers
In 2024, Yellow Pages reported revenue of $214.83 million, a decline of about 8.1% compared to the previous year. While revenue drops can be a red flag, the dividend stock’s ability to remain profitable despite this decline shows how effectively it has streamlined its operations. Net income for the trailing 12 months came in at $24.98 million, with an earnings per share (EPS) of $1.82. The company’s profitability was supported by earnings before interest, taxes, depreciation, and amortization (EBITDA) of $44.17 million, demonstrating its ability to generate healthy cash flow even as top-line growth faced headwinds.
One of the most attractive features for TFSA investors is Yellow Pages’s dividend. The dividend stock currently pays an annual dividend of $1.00 per share, representing a yield of 8.87% based on its recent share price of $11.28. This yield is significantly higher than what you’d find with more mainstream dividend stocks like the big banks or utilities. What makes this dividend even more appealing is its sustainability. The dividend stock’s payout ratio stands at a manageable 54.95%. This balance suggests that the dividend isn’t at risk of being cut unless the company faces significant, prolonged financial pressure.
Financially, the company appears solid. As of the most recent quarter, Yellow Pages held $44.2 million in cash and equivalents while maintaining a relatively modest debt load of $39.94 million. Its current ratio of 1.95 indicates that it has nearly twice the assets needed to cover its short-term liabilities. This financial stability not only supports the dividend but also provides flexibility for future investments or share buybacks.
Locking in value
From a valuation perspective, the stock appears reasonably priced. With a trailing price-to-earnings (P/E) ratio of 6.2 and a forward P/E of 6.92, Yellow Pages trades at a discount compared to many other income-focused dividend stocks. The company’s enterprise value-to-EBITDA ratio sits at just 2.91, further suggesting that the market is undervaluing its cash-generating potential. This combination of a high yield, strong cash flow, and a low valuation makes Yellow Pages an intriguing option for passive-income investors willing to look beyond the usual suspects.
The dividend stock itself has shown resilience, trading within a 52-week range of $8.70 to $12.19. It currently sits closer to the higher end of that range, reflecting some market confidence despite the revenue headwinds. Over the past year, the share price has climbed steadily, supported by consistent dividend payments and financial discipline. While Yellow Pages isn’t likely to deliver explosive growth, its stability and yield make it an attractive holding for those seeking reliable income.
Looking ahead, the dividend stock’s success will depend largely on its ability to maintain its customer base and expand its digital services. While competition in the digital marketing space is fierce, Yellow Pages’s focus on local businesses and its established reputation provide some insulation. Management has remained disciplined in managing costs, which should help sustain profitability even if revenue growth remains sluggish. The company’s continued free cash flow generation, which stood at $34.73 million over the past year, further supports the case for long-term dividend sustainability.
Bottom line
Yellow Pages offers an interesting opportunity for TFSA investors aiming to build passive income. The combination of an almost 9% yield, a manageable payout ratio, and strong cash flow generation makes it worth considering. While it may not have the growth potential of tech giants or the rock-solid reputation of blue-chip dividend payers, Yellow Pages provides something equally valuable: steady income with a relatively low valuation. For those looking to diversify their TFSA with an under-the-radar income stock, this Canadian dividend stock might just fit the bill.
