Investing in monthly dividend-paying stocks gives investors a frequent and regular additional source of income. Over time, this income can be used to reinvest and generate even more dividend income. Or it can be used to help fund everyday living needs. Doing this within one’s TFSA gives the added benefit of zero taxes on all income, further compounding the returns.
In this article, I’ll discuss an unorthodox, but still ideal TFSA stock that’s currently yielding a very attractive 5.9%.
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Peyto Exploration – exposure to the natural gas industry
Most of us have heard the bullish case for natural gas – it’s inexpensive, abundant, and it’s essential in the clean energy transition. Canada’s natural gas has all of these benefits, plus more – it’s secure, reliable, and from a highly trusted source.
In this world of conflict and war and political uncertainty, this is worth more than ever. And it shows in the way the world is turning toward Canada for its energy needs. In response, Canada has stepped up its investment in liquefied natural gas (LNG) facilities.
Closer to home, the bullish natural gas thesis centres around the rapidly rising demand from the utility industry, as well as demand from data centres. Altogether, this has created an environment that’s setting up to be one of the greatest natural gas demand periods in a long time.
Peyto Exploration and Development Corp. (TSX: PEY) is one of Canada’s prominent and lowest-cost natural gas producers.
Dividend history
As a natural gas producer exposed to the volatile natural gas commodity market, Peyto has a tough job. But over the years, the company has taken steps to reduce the volatility of the business.
This has been done by aggressively lowering costs, increasing efficiency, and diversifying. Today, Peyto is the lowest cost natural gas producer in Canada, with cash costs of $1.04 per one thousand cubic feet equivalent of natural gas (mcfe).
This has come through in Peyto’s financial performance over the last five years. Despite the fact that Canadian natural gas prices have been volatile and low, Peyto stock continued to pay its dividend of $0.11 per month. The company even increased its monthly dividend by $0.01 back in May.
Recent results for this TFSA stock
While Peyto is not the traditional dividend stock that investors might think about for their TFSA, it is nonetheless well worth considering. There’s a sea change sweeping the natural gas industry, and Peyto is extremely well-positioned within this.
Peyto’s recent results show the resilience and value of this company. Funds from operations came in at $227.7 million, 19% higher than the same period last year. Also, adjusted earnings per share (EPS) came in at $0.50, 19% higher than the same period last year.
The bottom line
Peyto has a lot of potential as an ideal TFSA stock providing monthly income. If one can be comfortable with the higher volatility of a commodity stock, the returns can be quite large. Also, of all commodity stocks, Peyto is one that I would bet on, as the company has focused on mitigating the risks and smoothing the volatility.
Today, its debt balance continues to decline due to strong cash flows, opening the door to possible further dividend increases in the future.
