Today's Perfect TFSA Stock: 5% Monthly Income

Today’s Perfect TFSA Stock: 5% Monthly Income

This top monthly dividend stock yielding 5% is worth considering for investors of nearly all time horizons and risk tolerance levels, in my view.

Chris MacDonald

Chris MacDonald has had a love for finance his whole life, ultimately leading him to pursue an MBA in finance. He's worked as a financial analyst for a number of companies in the corporate finance and venture capital space during his 10-year investing career. He endeavors to follow in the footsteps of iconic investors like Warren Buffett in building a long-term defensive portfolio.

Published March 19, 9:30 pm EDT

If you’re hunting for a rock-solid monthly dividend payer to supercharge your TFSA right now, there are really only a handful of top options to consider. That said, Whitecap Resources (TSX:WCP) stands head and shoulders above the crowd, at least in my view.

Here’s why this Calgary-based oil and gas producer providing investors with a 5% dividend yield (paid monthly) is the top dividend stock I think fits most income-hungry investor profiles right now.

monthly calendar with clock — Source: Getty Images

A sustainable dividend yield

This impressive aforementioned 5% dividend yield paid monthly is one thing. I think investors are starting to pay attention to the company’s payout ratio under 70%, the quality of its balance sheet, and improving profit margins as reasons to get in now.

Indeed, considering the run WCP stock has been on of late (see chart above), it’s clear this stock had a much higher yield in the past. In fact, I wrote a number of pieces a while back citing the company’s 6% yield. That’s what investing in top dividend stocks near troughs (such as those seen early last year) can do for long-term investors.

With a solid dividend growth trajectory, and plenty of visibility into rising cash flows over time, there’s a lot to like about Whitecap’s dividend sustainability and underlying fundamentals.

Why a TFSA?

Tax-Free Savings Accounts (TFSAs) are generally considered retirement investing vehicles best used for growth stocks. That’s simply due to the fact that capital gains aren’t taxed when funds are pulled out in retirement. So, the faster-growth stocks that appreciate 10 times or more are treated much more favourably in such an account from a taxation perspective.

That said, the same goes for reinvested dividend income over time. So, for those willing to reinvest Whitecap’s dividend into more shares via a dividend reinvestment plan (DRIP), this is a stock that can certainly provide outsized gains over the long term.

I think that Whitecap remains a buy right now, almost regardless of where oil prices go. If we do see a marked decline as global demand for oil wanes, this is a stock I think investors want to be standing at the ready to load up on. That said, WCP stock still looks like a buy to me at oil prices closer to $60 per barrel, based on its current fundamentals.