Every TFSA (Tax-Free Savings Account) can benefit from owning a few dividend stocks. Dividend stocks provide a consistent stream of income that can offset the volatility and day-to-day fluctuations common in the broader market. It helps balance out your overall returns.
Likewise, many dividend stocks tend to trade with lower volatility and a lower correlation to the broader market. They provide stabilizing ballast in a portfolio.
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Gibson Energy: A great TFSA stock to collect an outsized dividend yield
If you are looking for an outsized dividend yield (that is still safe), you should consider Gibson Energy (TSX:GEI) for your TFSA.
Gibson stock is trading for $29.66 per share with a market cap of $5.11 billion. It pays a $ 0.45-per-share quarterly dividend. That equates to a 5.95% dividend yield.
Gibson is a major energy storage and infrastructure player in Canada. It has 25.2 million barrels of energy storage capacity. One in four barrels of Western Canadian Select oil flows through its terminals.
These are critically located assets that handle Canadian energy volumes before they hit egress pipelines or tanker terminals. 75% of its revenue comes from take-or-pay contracts.
Growing energy demand supports more liquids through Gibson’s assets
With demand for North American energy supply expected to increase over the coming five years, Gibson is expecting volumes to substantially increase through its infrastructure.
It is focusing its $1 billion capital project plan on several modest, low-risk projects that are expected to propel 5% compounded annual earnings before interest, tax, depreciation, and amortization (EBITDA) growth over the coming five years.
Internal optimization projects and price increases should help create an additional 2% organic annual growth. Combine capital projects and organic growth, and you get a 7% compound annual growth rate (CAGR) over the coming five years. Management is aiming for shareholders to get a 100% total return over the coming five years when you combine its EBITDA growth and its dividend payments.
100% total return target for the coming five years
Now, Gibson is not completely without its risks. 25% of its business is subject to commodity price sensitivity. Consequently, the stock will likely fluctuate based on the price of oil.
Likewise, Gibson recently issued equity to complete a $400 million pipeline acquisition. The deal will significantly bolster Gibson’s plans to expand EBITDA by the 7% rate. However, in the near term, the dilution puts a bit of pressure on Gibson’s payout ratio, which is sitting close to 90%.
The dividend at the current rate is still sustainable. However, an investor would want to monitor this to make sure Gibson’s payout continues to decline over time. Certainly, if Gibson can achieve its EBITDA growth targets, the dividend-payout ratio becomes less of a concern.
Dividend-growth stock, but monitor the payout ratio
Gibson has a seven-year record of consecutively increasing its dividend. Since 2021, its dividend has grown by a 5.2% CAGR. The combination of an attractive 6% dividend yield and a mid-single-digit annual growth rate makes this an interesting passive-income stock.
If Gibson can achieve its growth expectations in the coming five years, shareholders should be positioned for a nice win. The company continues to focus on bolstering its infrastructure business, and that should help de-risk the stock over time. At the very least, you will collect a nice (hopefully growing) dividend and some modest stock appreciation over the coming years.
