Every dollar earned in a Tax-Free Savings Account (TFSA) is tax-free. However, in a volatile market like today’s, high yield and monthly dividends matter to income-focused TFSA investors. More than the frequency of reinvestment, the monthly payout functions like a regular paycheque that you can incorporate into your household budget.
Despite a looming energy crisis caused by the Iran war, the TSX’s energy sector continues to surge (+32.4% year-to-date) in 2026. Peyto Exploration & Development Corporation (TSX: PEY), one of the sector’s standout performers, is the perfect TFSA stock for March.
At $28.72 per share, the mid-cap stock pays an attractive 4.6% dividend, along with a monthly payout advantage. TFSA contribution room of $21,000 converts to $80.50 per month. Moreover, the principal remains intact. PEY also becomes a defensive income play.
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Natural gas-weighted
The $5.8 billion natural gas-weighted energy company operates in the Alberta Deep Basin. Today, Peyto is an expert in the efficient and profitable extraction of liquids-rich, natural gas resources. It benefits from the high demand for natural gas. In North America alone, liquified natural gas (LNG) export capacity grew by 25% in 2025. This export capacity is expected to expand over the next several years and double by year-end 2029.
Since Peyto is a low-cost operator, the company remains profitable even when AECO prices are weak. AECO is the primary price benchmark for natural gas in Western Canada. Every cent increase in the AECO price translates into excess cash for Peyto.
According to management, even with modest production growth (5% to 10% per year), Peyto’s assets will increase in value and generate enough free cash flow (FCF) to fund its capital program, reduce debt, and pay dividends. In 15 of the last 20 years, Peyto has beaten the AECO monthly price with its diversification strategy and through methodical hedging.
Financial performance
In 2025, Peyto’s total revenue increased 25% to $1.1 billion versus 2024, while earnings jumped 49% year-over-year to $418.6 million. Annual operating and profit margins for the year were 72% and 31%, respectively. The FCF of $325 million enabled Peyto to pay $264.9 million in dividends and reduce debt by $171 million. Also, the total payout ratio declined from 102% to 87%.
Under its commodity hedging policy, Peyto enters into risk management contracts with well-established counterparties to protect a portion of future revenues from the price volatility (oil and natural gas). Rising commodity prices lead to hedging losses, while falling commodity prices mean hedging gains. Total cumulative realized gains since the program’s inception in 2003 are $759 million.
Peyto’s long-standing strategy is to maximize shareholders’ returns by focusing its investments and deploying capital in developing long-life, low-cost, and low-risk natural gas resource plays. Investors’ confidence is reflected in the stock’s performance. PEY’s total return in five years is plus-622.4%, a compound annual growth rate (CAGR) of 48.5%.
Reliability and suitability
Peyto hasn’t missed a monthly dividend payment since August 15, 2003. This dividend consistency confirms the stock’s reliability and suitability for a TFSA. Consider using your available room to invest in PEY and receive recurring tax-free income every month.
