How I’d Turn the $7,000 TFSA Contribution Into Monthly Passive Income

Canadian investors should aim to leverage the benefits associated with the Tax-Free Savings Account (TFSA) and create a low-cost passive-income stream in 2025.

Buying undervalued dividend stocks will help investors generate capital gains over time and a steady stream of passive income. As any returns earned in this popular registered account are exempt from Canada Revenue Agency taxes, you should consider holding quality dividend stocks in the TFSA.

In recent months, falling oil prices have lowered the valuations of energy stocks. However, the pullback has increased the dividend yield of several TSX stocks in April 2025. In this article, I have identified a high-dividend stock that offers a monthly payout and a yield of 9%. Let’s see why this TSX dividend stock should be part of your TFSA portfolio today.

Is this TSX dividend stock a good buy?

Valued at a market cap of $4.7 billion, Whitecap Resources (TSX: WCP) is an oil and gas company that develops petroleum and natural gas properties in Canada. Its principal properties are located in Alberta, British Columbia, and Saskatchewan.

Whitecap recently announced a transformative merger with Veren, creating an industry-leading light oil and condensate producer with a combined production of approximately 370,000 BoE/d (barrels of oil equivalent per day). The all-stock transaction, which values the combined entity at $15 billion, will position Whitecap as Canada’s seventh-largest oil and gas company in terms of production.

The merger, expected to close next month, will consolidate prolific assets in the unconventional Montney and Duvernay plays while expanding free cash flow generating capabilities in Saskatchewan, where there is significant asset overlap. The combined entity will control 1.5 million acres in the Alberta Montney and Duvernay, with a current production of 220,000 BoE per day from those assets.

“We are excited to merge two world-class assets under the Whitecap umbrella to create best-in-class technical, operating and financial teams with the objective of providing sustainable top-quartile returns to shareholders,” said Grant Fagerheim, Whitecap’s president and chief executive officer, who will lead the combined company.

Under the terms of the agreement, Veren shareholders will receive 1.05 common shares of Whitecap for every Veren share they hold. The transaction delivers a 10% accretion on funds flow per share and a 26% accretion on free fund flow per share, with over $200 million in cost synergies identified.

The companies have outlined $100 million in annual capital cost synergies, $75 million in operating cost synergies, and $30 million in corporate cost synergies expected to be realized within six to 12 months of closing.

A high dividend yield in 2025?

Whitecap reported strong first-quarter results, with production averaging 179,051 BoE/d (65% liquids), generating funds flow of $446.3 million ($0.76/share). Production exceeded internal forecasts by over 6,000 BoE/d due to strong new well performance and better-than-expected base production.

The pro forma company will have a fortress balance sheet with a debt-to-funds flow ratio of 0.9 times at closing, expected to improve to 0.8 times or better by year-end 2026. Based on $70 WTI (West Texas Intermediate), the combined entity is expected to generate approximately $3.8 billion in funds flow with $2.6 billion in capital expenditures, resulting in $1.2 billion of free funds flow.

Whitecap will continue its annual dividend of $0.73 per share, which yields 9%. Given its outstanding share count, Whitecap’s annual dividend expense is around $430 million, indicating a payout ratio of less than 40%.

Whitecap’s dividend payout ratio is sustainable, allowing it to allocate funds to lower debt levels and target inorganic growth. Analysts remain bullish and expect the TSX stock to gain over 55% in the next 12 months. If we include dividends, cumulative returns could be closer to 65%.

An investment of $7,000 in the TSX stock will help you purchase 873 company shares and earn more than $53 in monthly passive income. If WCP raises its dividends by 7% annually, your dividend payment will double over the next 10 years.