A TFSA Dividend Stock Yielding Close to 8%, With Cash Flow That Keeps Climbing

If you are building a TFSA (Tax-Free Savings Account) around dependable income, the usual picks are big Canadian banks or large-cap energy stocks.

However, there is one small-cap gem that could be part of your TFSA income portfolio in July 2026. Valued at a market cap of $322 million, this Canadian dividend stock offers you a forward yield of almost 8%.

This stock is none other than Alvopetro Energy (TSXV:ALV), which offers a high yield backed by production growth and growing cash flow. Alvopetro is an oil and gas producer operating in Brazil, with a newer growth platform now underway in Saskatchewan.

In addition to consistent dividend income, TFSA investors are also poised to benefit from long-term capital gains. In the last five years, this high-yield stock has returned 363% to shareholders, after adjusting for dividend reinvestments.

The bull case for the TSX dividend stock

Alvopetro was the first independent company to deliver sales-specified natural gas into Brazil’s local distribution network, starting on July 5, 2020, in the northeastern state of Bahia. Since then, it has built a track record few small energy producers can match.

In the first quarter of 2026 alone, Alvopetro reported funds flow of $12.5 million, operating funds flow of $17.5 million, and an operating netback profit margin of 84%.

CEO Corey Ruttan compared Alvopetro against two similarly sized peers and found that one Canadian producer, pumping roughly three times as much oil and gas, generated 25% less cash flow in the same quarter.

Alvopetro’s gas plant sits close to a major industrial complex in Bahia that consumes more natural gas than the entire state produces. As Alvopetro connects directly to the local distribution network, it captures premium pricing roughly nine times higher than that received by a typical Canadian gas producer and about four times higher than US pricing, based on the futures market reset expected on August 1, 2026.

Alvopetro averaged more than 2,500 barrels of oil equivalent per day in 2025, up 41% year over year. That growth continued into 2026, with the first five months running about 25% ahead of an already strong 2025.

A top TFSA dividend stock

A high yield is often a warning sign, but that is not the case with Alvopetro, which aims to reinvest 50% of its cash flow and distribute the rest to shareholders.

The current annual dividend per share of US$0.48 translates to a yield of 7.9%. Since introducing its dividend in Q3 2021, Alvopetro has paid out more than US$2 per share, totalling US$75 million to shareholders. Last year, the annual payout rose by 17%, an exceptional increase.

Alvopetro grew its proved plus probable reserves by 43% last year, even after producing nearly one million barrels of oil equivalent, replacing more than five times what it pumped out of the ground.

The company also secured a $20 million loan in Brazil on favourable terms, providing it with the flexibility to expand facilities and handle rising production from its Murucututu field.

The Foolish takeaway

Alvopetro offers an unusually strong combination of yield, growth, and robust balance sheet fundamentals.

Trading at roughly 60% of its assessed net present value, according to reserve evaluator GLJ, the dividend stock looks reasonably priced relative to its underlying assets, with additional upside from its new Western Canadian oil play still barely reflected in the share price.

That said, Alvopetro is a small-cap stock tied to a single foreign jurisdiction and commodity prices that can swing quickly, so it will not suit every conservative income portfolio.

For investors comfortable with that risk, this looks like one of the more compelling yield-and-growth combinations available in July 2026.

The post A TFSA Dividend Stock Yielding Close to 8%, With Cash Flow That Keeps Climbing appeared first on The Motley Fool Canada.

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More reading

• A Canadian Dividend Pick Down 15%: A Forever Hold
• A TFSA Pick Yielding 7.6% With Dependable Cash Payments

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alvopetro Energy. The Motley Fool has a disclosure policy.