3.25% Monthly Income: Today’s Perfect TFSA Stock

Given its resilient business model and long-term growth prospects, Northland Power is well-positioned to deliver both capital appreciation and steady monthly income, making it a solid TFSA investment.

Key Points
  • Northland Power stands out as a stable income-generating investment, backed by a diversified portfolio of power-generating facilities and a substantial portion of revenue from long-term contracts, offering a 3.24% dividend yield.
  • With significant investments planned to expand capacity and improve operational efficiency, coupled with strong year-to-date performance, Northland Power appears poised for sustainable growth and potential upside in a TFSA portfolio.

Generating passive income can strengthen your financial position while helping preserve your purchasing power during periods of elevated inflation. In addition, reinvesting the passive income allows investors to harness compounding, which can significantly enhance long-term total returns.

Among the various income-generating investments, monthly dividend stocks stand out for providing a steady stream of cash flow while offering the potential for capital appreciation. However, dividend payments are never guaranteed. That is why investors should prioritize companies with resilient business models, reliable cash flow, and a proven track record of maintaining or growing dividends. Moreover, investors can make these investments through their Tax-Free Savings Account (TFSA) to earn tax-free returns, including capital gains and dividend income.

With that in mind, let’s take a closer look at Northland Power (TSX: NPI) to assess whether the stock presents an attractive buying opportunity.

Canadian Dollars bills

Source: Getty Images

Northland Power’s business outlook

Northland Power owns or has an economic interest in a diversified portfolio of power-generating facilities, including offshore and onshore wind, solar, and natural gas power facilities, with a total capacity of 3.5 gigawatts. Most of the electricity produced by these assets is sold under long-term power purchase agreements (PPAs), which have a weighted-average remaining term of approximately 14 years. With roughly 95% of its revenue generated from contracted assets, the company’s financial performance is largely insulated from market volatility, economic cycles, and commodity price fluctuations.

In its recently reported first-quarter results, Northland Power delivered solid financial growth, with revenue rising 16.5% year over year to $775 million. Stronger generation from its offshore wind facilities and contributions from the Oneida Energy Storage Facility, which began commercial operations in the second quarter of 2025, drove its topline. Meanwhile, lower electricity generation from the company’s onshore wind and solar assets across Spain, Canada, and the United States partially offset its revenue growth.

The robust revenue growth translated into improved profitability, with net income and adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) increasing 45% and 18.3%, respectively. Meanwhile, cash flow from operating activities climbed 35% year over year to $571 million, while free cash flow per share increased 16.7% to $0.70.

Following this strong first-quarter performance, let’s examine Northland Power’s long-term growth prospects to assess whether the company can sustain its momentum and continue creating value for shareholders in the years ahead.

Northland Power’s growth prospects

The global transition toward cleaner energy, driven by growing concerns over pollution and climate change, continues to accelerate investments in renewable energy infrastructure. This favourable industry backdrop creates significant long-term growth opportunities for Northland Power.

To capitalize on this trend, the company plans to invest between $5.8 billion and $6.6 billion through 2030 to expand its asset base. These investments could increase its power generation capacity to approximately seven gigawatts, representing an annualized growth rate of nearly 16% through the end of the decade. In addition to expanding its portfolio, Northland Power focuses on enhancing operational efficiency and optimizing costs, with management targeting approximately $50 million in annualized savings beginning in 2028.

Supported by these initiatives, management expects free cash flow per share to range from $1.55 to $1.75 by 2030, implying a modest annualized growth rate of about 2.5%. Given its visible growth pipeline, contracted revenue base, and improving operating efficiency, I believe Northland Power is well-positioned to sustain its monthly dividend while creating long-term value for shareholders.

Investors’ takeaway

Backed by its stable cash flow generation, Northland Power maintained a monthly dividend of $0.10 per share from 2019 until late last year. However, in December, management reduced the monthly payout by 40% to $0.06 per share to preserve financial flexibility, support its long-term growth initiatives, and maintain a strong balance sheet. The company continues to pay a monthly dividend of $0.06 per share, yielding 3.2% at current prices.

Meanwhile, Northland Power has attracted strong investor interest this year, with its shares returning 26.3% year to date. Despite this impressive rally, the stock continues to trade at a reasonable valuation of 2.2 times forward sales and 15.3 times forward earnings, suggesting there could still be room for further upside as the company’s growth projects come online.

Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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