Canadian investors should consider holding quality dividend stocks in their TFSA (Tax-Free Savings Account) to benefit from a steady stream of passive income and long-term capital gains. Moreover, these returns, if generated in a TFSA, are exempt from Canada Revenue Agency taxes.
The TFSA contribution room in 2025 has increased to $7,000, bringing the cumulative contribution limit to $102,000. Here’s why I would allocate my entire TFSA contribution room for 2025 to this monthly-paying dividend stock.
Is this dividend stock a good buy?
Valued at a market cap of $160 million, Decisive Dividend (TSXV:) is a diversified Canadian manufacturing company operating through Finished Product and Component Manufacturing segments. It produces wood-burning stoves, fireplace inserts, and fireplaces across North America and internationally. The company also manufactures industrial equipment, including air blast sprayers, wastewater evaporator systems, wear parts, valves, and CNC machined components. Additional offerings include road maintenance equipment, automotive components, fuel tanks, conveyor systems, and retail merchandising solutions for consumer goods customers.
Decisive Dividend went public in September 2013 and has since returned over 1,000% to shareholders in dividend-adjusted gains. Despite its outsized gains, the dividend stock offers you a forward yield of 7.2%.
Decisive Dividend delivered its strongest quarter in the first quarter (Q1) in company history. It reported $39.2 million in consolidated sales for the first quarter, representing a 34% year-over-year increase. The Canadian manufacturing company generated $7 million in adjusted EBITDA (earnings before interest, tax, depreciation, and amortization), nearly matching the combined total of Q1 and Q2 of 2024.
Decisive Dividend reported revenue growth across business segments. The hearth businesses (Blaze King and ACR) achieved a 17% sales growth despite entering a traditionally low sales period. Agriculture businesses, including Slimline’s sprayer products and IHT, reported 31% higher sales, driven by a strong recovery in pork pricing that restored farmer confidence after challenging profitability years.
Industrial products businesses saw a 32% increase in sales, while the merchandising division grew by 38%. The addition of Techbelt to the wear parts portfolio contributed to a 70% increase in that segment.
Its free cash flow, less maintenance capital expenditures, more than doubled year over year. A widening free cash flow base allowed it to narrow the dividend payout ratio from 96% to 82% in the last 12 months. The company also improved its leverage ratio from 3.1 times to 2.7 times, strengthening balance sheet capacity for future acquisitions.
Is the dividend stock undervalued?
Analysts tracking Decisive Dividend forecast revenue to increase from $128 million in 2024 to $221 million in 2028. Comparatively, free cash flow is estimated to improve from $6 million to $28 million in this period.
If the dividend stock is priced at 15 times forward free cash flow, which is reasonable, it should surge over 160% over the next three years. After accounting for the 7.2% dividend yield, cumulative returns could be closer to 200%.
Management maintains an optimistic outlook based on 60% higher order backlogs compared to the year-ago period and continued strong April order activity. It plans to launch six new hearth products in 2025, including the E16 stove for North America and the Tempest overnight burn stove for the U.K. market.
However, uncertainty remains regarding the potential impacts of U.S. trade policies, as 50% of sales flow into the American market. The company is focusing its acquisition efforts on domestic resource-focused businesses, U.S.-based operations within existing verticals, and UK opportunities to mitigate trade risks while maintaining growth momentum.