This 4.6% Dividend Stock Is My Top Pick for Immediate Income

Let’s get right to it: Lundin Gold (TSX:LUG) could be the best dividend stock in the gold sector right now, and most Canadian income investors still haven’t noticed.

It generated over US$900 million in free cash flow last year, paid out more than US$664 million in dividends, and just declared another quarterly dividend of US$1.15 per share. At current prices, that works out to a yield of roughly 4.6%.

Valued at a market cap of $23.7 billion, Lundin is a high-margin gold producer with one of the best mines on the planet sitting at full stride.

A blue-chip gold mine

Fruta del Norte is located in southeast Ecuador and is 100% owned by Lundin Gold. The average gold grade is 9.5 grams per ton, which is several times higher than most major gold mines globally. The higher the grade, the more gold you get per ton of rock processed, and the lower your costs.

In 2025, cash operating costs came in at US$838 per ounce. The average realized gold price for the year was US$3,594 per ounce. That’s a basic margin of 72%. Very few businesses in any industry operate at those margins, let alone a mining company.

The mill processed over 1.8 million tons last year at an average of 5,009 tons per day, a record. The company is now targeting 5,500 tons per day in 2026, with a broader expansion study underway to push beyond that.

The TSX dividend stock ended 2025 with US$630 million in cash and no meaningful debt. That kind of balance sheet gives management flexibility to keep growing without asking shareholders for money.

The dividend structure is built to deliver

Lundin has a fixed component of US$0.30 per share per quarter, which is the baseline. Then there’s a variable component tied directly to free cash flow. In the fourth quarter of 2025, that variable portion was US$0.85 per share, reflecting 100% of normalized free cash flow (FCF) for the quarter, well above the company’s stated policy minimum of 50%.

The Q4 total payout of US$1.15 per share amounted to roughly US$278 million. For the full year, Lundin paid out US$664 million in dividends while still ending with US$630 million in the bank.

FCF is forecast to improve to US$1.7 billion in 2026 and US$1.71 billion in 2027, which should support further dividend hikes.

A new ore asset

Income investors sometimes worry that a big dividend comes at the cost of future growth. However, Lundin Gold just added a new deposit, called FDNS, or Fruta del Norte South, into its mineral reserves for the first time.

Underground development toward that deposit is now underway, with roughly $30 million to $35 million in capital budgeted for 2026. CEO Jamie Beck described FDNS as a complementary addition to existing mining operations: not a massive overhaul, but a steady extension of mine life and production at current levels.

The company also has five copper-gold porphyry targets identified on its broader land package, some of which are posting extraordinary drilling results. At Sandia, the best intercept to date came in at 322 metres, with 1.08% copper equivalent near the surface.

Total proven and probable reserves now stand at 5.85 million ounces, up 6% year-over-year, even after accounting for 2025 mining depletion. Mine life is currently estimated at roughly 12 years, and that number is likely conservative given ongoing exploration success.

For Canadian investors looking for immediate income backed by a genuinely world-class asset, Lundin Gold deserves to be near the top of the list.

The post This 4.6% Dividend Stock Is My Top Pick for Immediate Income appeared first on The Motley Fool Canada.

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Fool contributor Aditya Raghunath 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.