The tax-free savings account, or TFSA, is a wonderful investment vehicle that shelters all income and capital gains from taxes. For this reason, some of the best TFSA stocks are high-yielding ones. The TFSA benefits all investors, young and old, and it should be maximized as much as possible.
If you are looking for regular dividend income that’s reliable, growing and pays out monthly, consider Peyto Exploration and Development Corp. (TSX: PEY). This TFSA stock gives you access to a 6.2% dividend yield in the form of regular monthly cash payments that are tax-free.
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Natural gas is having its moment
Natural gas is in a sweet spot right now. Rising demand is coming from a variety of sources. And the expectation is that supply will fall short in the coming years. Naturally, if this happens, this will result in higher natural gas prices. Let’s walk through some of the details.
As you know, LNG Canada is now up and running and quickly ramping up. According to the CEO of another top Canadian natural gas producer, LNG demand will hit two billion cubic feet per day (bcf/d) in the coming years. Additional demand will come from power consumption and the electrification of the energy grid. Yet, not too much supply is coming on in this time period. In fact, he estimates that supply will grow by less than one bcd/d next year.
The last time that the natural gas industry saw such a big demand boost was when the Alliance Pipeline was built. This pipeline was built in order to meet the strong demand coming from premium markets in the Chicago area. It was completed in 2000, and this extra demand sent Canadian natural gas prices (AECO) skyrocketing to more than $11. Just for comparison purposes, recent months have seen AECO prices of below $1.
The expected supply/demand imbalance is quite big. And it’s why I’m very bullish on natural gas and natural gas stocks. Yet, I don’t think investors are really paying enough attention. The magnitude of this demand boost that’s expected from LNG Canada is transformational.
The TFSA stock to own for monthly income
This brings me back to Peyto. As natural gas accounts for almost 90% of Peyto’s total production, it’s clear that Peyto will benefit tremendously from this rising natural gas price environment. And Peyto is well set up in this regard, with top-quality assets. It is these long-life, low-cost assets that have supported and driven Peyto’s strong results over time. Also, Peyto has access to a diversified set of customers and markets, which means higher pricing.
In Peyto’s most recent quarter, production increased 8%, earnings per share (EPS) increased 65%, and funds from operations increased 22% to $191 million. This was all against a backdrop of low Canadian natural gas prices and production setbacks due to weather. Imagine what Peyto could do when natural gas prices are rallying.
The bottom line
Natural gas, and therefore, Peyto, seem to be headed toward prosperous times, as natural gas demand is likely to drive prices higher in the coming year. This positive environment will further support Peyto’s dividend program. Under this bullish scenario, I expect we will see healthy dividend growth as well.
This TFSA dividend stock is a perfect addition to your tax-free savings account, for what I expect will be growing monthly income.
