When a basically strong dividend inventory finds a technique to continue to grow with out debt and nonetheless reward traders with significant payouts, it turns into exhausting to disregard. Add in sturdy operational execution and a low-cost construction, and also you’ve acquired a strong inventory for long-term wealth constructing. That is very true for Canadians utilizing their Tax-Free Financial savings Account (TFSA) to create tax-free earnings streams.
One such TFSA-friendly dividend inventory, Headwater Exploration (TSX:HWX), has not solely doubled manufacturing over the previous few years but in addition managed to shrink its upkeep prices and improve its free money circulate. On this article, I’ll speak about why this prime Canadian dividend champion is a kind of strong long-term bets each Canadian ought to take into account including to their TFSA.
A prime Canadian dividend inventory for TFSA traders
Should you don’t comprehend it already, Headwater Exploration is a Calgary-headquartered oil and gasoline producer. It primarily focuses on heavy crude oil manufacturing and operates a pure gasoline processing facility. Whereas it may not be at the moment extensively recognized, the corporate’s efficiency lately makes it a standout candidate for long-term TFSA portfolios.
After rallying practically 32% over the past six months, HWX inventory at the moment trades at $7.50 per share, giving it a market cap of $1.8 billion. At this market value, it additionally affords a beautiful annualized dividend yield of 5.9%, paid out quarterly.
Robust money flows and lean operations
One of many key components that makes Headwater completely different is how effectively it runs its operations. Since 2020, the corporate has grown its oil manufacturing by over 600% whereas protecting capital spending beneath management and avoiding debt. It hasn’t issued fairness or taken on new debt in additional than 5 years, which is uncommon within the power sector.
Within the September quarter, the corporate posted a internet revenue of $35.9 million, with adjusted funds circulate from operations at $80.4 million. Even with decrease commodity costs, Headwater’s working netbacks stayed wholesome, due primarily to its value self-discipline and sensible hedging.
Secondary restoration is accelerating development
An actual driver of Headwater’s future development might be its aggressive use of secondary restoration strategies. Greater than 50% of its present manufacturing is now supported by secondary restoration, and that quantity is anticipated to rise to 60% by the top of 2026. This shift is already paying off within the type of decrease decline charges and diminished upkeep capital, permitting Headwater to develop manufacturing with much less spending.
Its operations in Marten Hills West and the Better Pelican space are displaying promising outcomes. Within the Grand Rapids formation, eight new multi-lateral wells have already pushed manufacturing to 2,000 barrels per day, with restoration charges exceeding expectations.
Such strategic strikes have enabled Headwater to reallocate $42 million from its growth capital to exploration and land acquisition this 12 months with out altering its general capital funds. It’s a transparent signal that the corporate is specializing in asset longevity and long-term free money circulate reasonably than chasing short-term beneficial properties.
Why this dividend inventory suits completely in a TFSA
With the TFSA, the objective is usually to develop tax-free earnings streams with out taking up pointless danger. And Headwater Exploration affords simply that by delivering a strong yield, low decline manufacturing, and a plan for sustained development, whereas protecting its stability sheet clear. As well as, its potential to fund each dividends and development by inner money circulate makes it a fantastic selection for TFSA earnings and capital appreciation.
