Is This 8.3% Dividend a Safe Stock to Hold in Your TFSA?

Gamehost Inc (TSX:GH) pays its investors a very attractive monthly payout, but it could be in danger of being cut.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A TFSA is a great place to hold dividend stocks, since any income earned on the investments, whether it’s capital appreciation or dividend income, will not be taxable. While investors want to maximize that income, it can be dangerous to hold very high yields, because it could leave you vulnerable to a possible dividend cut. And if a cut happens, not only could you see less dividend income, but the stock could also plummet in value, hitting your portfolio on multiple fronts.

One stock that I’ll look at today that could be in that boat is Gamehost (TSX:GH). Currently, the Alberta-based company is paying its shareholders a very attractive 8.3% yield. Let’s take a look at some of the reasons why the stock is a bit of a risk and whether or not investors should stay away from it.

The company has already cut its dividend before

A few years ago, Gamehost was paying a monthly dividend of $0.073 and reduced it to $0.058, an amount that it has been paying since mid-2016. This is an important consideration for investors because for stocks that have a history of raising dividend payments, it can be a big deterrent to suddenly cut them, as it could stop their streak and make them less attractive to dividend investors.

Gamehost doesn’t have a reputation for dividend growth, nor is it a stock that hasn’t reduced a dividend, either. Those factors would make it easier for the company to look to slash its dividends again should it need to do so. There would certainly be more resistance from management were Gamehost a Dividend Aristocrat. But with that not being the case, the path to a cut is much easier for the company to take.

Gamehost’s margins and free cash may not be strong enough to justify keeping the dividend

Over the past four quarters, the company has generated free cash flow of $18.2 million. That’s well in excess of the $16.8 million in dividends that it paid out during that time, but whether that’s enough of a buffer for the company is questionable. During that period, Gamehost spent just $600K on capital expenditures. If the company is looking to spend more on growth, the gap between free cash flow and dividends could begin to shrink in a hurry.

While the hospitality and gaming company has a very healthy profit margin of 23% over the past four quarters, the company’s payout ratio has still been more than 100%. If that high of a ratio persists, management could feel the need to cut its dividend as that is often a key indicator of whether payouts have become unsustainable. A payout ratio of more than 90% could be a big risk, let alone 100%.

Is Gamehost’s dividend too risky?

As of now, the Albertan economy still looks to be a big question mark, and it’s one that I wouldn’t be comfortable be investing in just yet. Unless we see more traction in that province, and that includes a stronger oil and gas industry, TFSA holders may be taking on too much risk, as there’s definitely a strong case to make as to why Gamehost could slash its dividends again. A bad quarter or two could put pressure on management to free up some cash flow, and with a dividend of 8.3%, the company’s high payouts could be an easy area for them to target.

Should you invest $1,000 in Bank of Montreal right now?

Before you buy stock in Bank of Montreal, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Bank of Montreal wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,345.77!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 24 percentage points since 2013*.

See the Top Stocks * Returns as of 4/21/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor David Jagielski has no position in any of the stocks mentioned. 

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

coins jump into piggy bank
Dividend Stocks

How to Use Your TFSA to Earn $1,057/Year in Tax-Free Income

Investing $5,000 in each of these high-yield dividend stocks can help you earn over $1,057 per year in tax-free income.

Read more »

Man in fedora smiles into camera
Dividend Stocks

How I’d Build a $20,000 Retirement Portfolio With These 3 TSX Dividend All-Stars

If you're worried about returns and want to focus on dividends, these dividend stocks are the first to consider.

Read more »

View of high rise corporate buildings in the financial district of Toronto, Canada
Dividend Stocks

If I Could Only Buy and Hold a Single Canadian Stock, This Would Be It

Here's why this high-quality defensive growth stock is one of the best Canadian companies to buy now and hold for…

Read more »

Concept of multiple streams of income
Dividend Stocks

3 Safe Dividend Stocks for Retirees

These three Canadian stocks are ideal for retirees due to their solid cash flows, consistent dividend growth, and healthy growth…

Read more »

dividends can compound over time
Dividend Stocks

3 Canadian Market Leaders Where I’d Invest $10,000 for Sustained Performance

Market leaders like Alimentation Couche-Tard Inc (TSX:ATD) are worth an investment.

Read more »

Hand Protecting Senior Couple
Dividend Stocks

How I’d Allocate $12,000 Across Canadian Value Stocks for Retirement Planning

Suncor Energy Inc (TSX:SU) is a Canadian energy stock worth investigating.

Read more »

Pile of Canadian dollar bills in various denominations
Dividend Stocks

Stocks You Can Buy Now and Get Monthly Payouts From for Decades

Are you looking for monthly payouts? There are more than a few great investments that can fuel a monthly income…

Read more »

e-commerce shopping getting a package
Dividend Stocks

Where I’d Put $1,000 Right Away in 2 Top Canadian Stocks for Growth

These two Canadian stocks are strong options and have been for decades, and that's not going to change anytime soon.

Read more »