Identifying and creating a diversified portfolio of high-quality dividend stocks in your Tax-Free Savings Account (TFSA) can be a gift that literally keeps on giving.
Suppose you buy and hold a fundamentally solid dividend stock in your TFSA. In that case, the dividends it generates will grow your account balance without incurring any taxes on the dividends. Reinvesting those dividends to purchase more shares means you can accelerate wealth growth by unlocking the power of compounding.
The TSX boasts plenty of high-quality dividend stocks that you can consider investing in for this purpose. Today, I will discuss a lesser-known dividend stock that you should keep on your radar if you are on the hunt for such holdings for your self-directed investment portfolio.
Headwater Exploration
Headwater Exploration Inc. (TSX:HWX) is an oil and gas exploration and development company. The $2.1 billion market-cap company might not be the biggest in its industry, but that might be just the reason to consider it an attractive investment for your portfolio. Headwater primarily focuses on producing heavy crude oil, and it has a natural gas processing facility.
Even though Headwater might not be making the headlines like other oil and gas producers, its performance makes it a stand-out investment for investors with a long-term strategy. As of this writing, HWX stock trades for $8.66 per share. Up by 82.3% from its 52-week low, it also pays investors dividends at a juicy 5.1% dividend yield.
Headwater Exploration is not a well-known company, but its operational efficiency makes it a strong contender to become big in the sector. In the last 5 years, the company’s oil production has increased sixfold while it has avoided debt and kept its capital expenses under control. These are rare feats in the energy industry that it has fulfilled.
What sets it apart
The company’s use of secondary recovery techniques sets it apart from most other oil and gas producers. Over half of the company’s production is supported by secondary recovery, and the figure is expected to increase to 60% by the end of next year. The secondary recovery techniques it uses allow Headwater to grow production with very little expenditure.
The company’s operations in the Greater Pelican and Marten Hills West areas are delivering promising results. Improvements in the company’s Grand Rapids formation have already started to push its production to 2,000 barrels per day, and recovery rates were better than expected.
The innovations it uses have allowed the company to reallocate around $42 million from its capital to land acquisition and exploration without increasing its overall capital expenses.
Foolish takeaway
The TFSA is an excellent investment vehicle to get the most returns out of your investments without incurring taxes. Building a sizeable portfolio of reliable dividend stocks can help you use the account to enjoy a more comfortable retirement.
Headwater Exploration stock can be a good investment to consider for your TFSA for reliable dividend income and strong long-term growth potential. Combined with a well-balanced portfolio of blue-chip stocks, it can help you achieve long-term financial goals.
