The Canada Pension Plan (CPP) is a monthly taxable benefit that aims to replace part of your income in retirement. In 2025, the average monthly CPP payout will be $848, while the maximum payment will be $1,433 for a 65-year-old.
We can see that Canadians need to focus on supplementing the CPP pension benefit with other income streams to live a comfortable life in retirement.
An inexpensive way to create a tax-free passive income stream is to hold quality dividend stocks in the Tax Free Savings Account (TFSA).
So let’s take a look at how I would supplement my CPP payout with consistent TFSA income.
TFSA investors should buy these Canadian energy stocks
Investors with exposure to fundamentally strong dividend stocks have the opportunity to benefit from stable passive income and long-term capital gains.
In the past 10 years Enbridge shares returned 20% to shareholders. However, if we adjust for dividend reinvestments, the cumulative return is closer to 121%.
Investors should identify a portfolio of companies across multiple sectors that are poised to maintain or even grow their dividend payments. One such Canadian stock is Alvopetro energy (TSXV:ALV), which gives you a forward yield of 8.2%.
Alvopetro Energy, with a market capitalization of $238 million, is engaged in the acquisition, exploration, development and production of hydrocarbons in Brazil and Canada.
Is the dividend stock undervalued?
Alvopetro Energy is having a breakout year, with production growing 50% year-on-year in the second quarter (Q2) of 2025. Additionally, the company reported industry-leading operating margins of above 80% while paying a dividend that yielded more than 9%.
The Brazilian operation is the cash flow driver as Alvopetro upgraded its gas sales agreement with Bahiagas late last year, increasing firm volumes by 33%. Production in Brazil averaged about 2,300 barrels of oil equivalent per day in July, with natural gas fetching $10.62 per thousand cubic feet, significantly higher than prices in North American markets.
Operating netbacks in Brazil reached $56.08 per barrel in the second quarter, more than $5 more than the previous quarter. The company benefits from a low royalty rate of 4.2% and is eligible for a reduced income tax rate of 15%. Alvopetro is also debt-free with $15 million in cash on the balance sheet.
Management increased the quarterly dividend this year to $0.10 per share from $0.09 previously. Since dividend payments began in 2021, the Canadian dividend stock has returned $58 million to shareholders, while reinvesting about half of its cash flow in growth projects.
In Western Canada, Alvopetro closed a farm-in deal in February, focusing on the Mannville stack in Saskatchewan. The company has already drilled four wells in seven months using advanced open-hole multilateral technology.
CEO Corey Ruttan outlined a potential 52-well Canadian development that could boost production to 1,400 barrels per day while generating $80 million in free cash flow after capital repayment. Individual well costs are approximately $1.8 million gross, with Alvopetro owning 50%.
Analysts who follow Alvopetro Energy stock predict that net profit will rise from $23.3 million in 2024 to $62.2 million in 2029. During this period, free cash flow is expected to improve from $28 million to $72 million.
Given an annual dividend of $0.40 per share, Alvopetro’s dividend cost is approximately $15.4 million, suggesting a 50% payout ratio in 2026. It is likely that Alvopetro will increase its annual dividend as cash flow margins continue to grow.
For a company trading at less than its proven reserve value and 45% of its probable reserve value, Alvopetro shares offer an unusual combination of returns, growth and balance sheet strength.
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