Are you looking for high monthly income from your investments? Whitecap Resources (TSX:WCP), a Canadian oil-weighted producer, might be flying under your radar. While energy stocks are often seen as volatile and more suitable for trading than income, Whitecap Resources breaks this notion with a hefty 7.6% dividend yield — paid in cash every single month.
At a recent share price of $9.63, a $10,000 investment in Whitecap would generate approximately $757 annually, or about $63 per month. But is this eye-catching dividend too good to be true?
Is the dividend safe?
One of the first questions any prudent investor should ask is whether a high dividend is sustainable. In Whitecap Resources’s case, the short answer is yes — for now.
Whitecap’s dividend is currently covered by both its free cash flow and earnings. Over the trailing 12 months, the company paid out only 68% of its free cash flow and 47% of its net income. With a breakeven West Texas Intermediate oil price of around US$55 per barrel — and current oil prices sitting above US$68 — there’s a decent cushion.
This year, the company is targeting production between 295,000 and 300,000 barrels of oil equivalent per day and expects to generate $2.8 billion in funds flow, or about $2.79 per share. Its planned capital expenditures total $2.0 billion, which still leaves room to support dividend payments — $431.4 million over the past 12 months — with some flexibility left over.
To top it off, Whitecap is considering buying back shares, a move that can enhance shareholder value over time, especially since shares appear to be undervalued at the moment. Its balance sheet remains solid, with a long-term debt-to-capital ratio of just 13.7%.
The risk you can’t ignore
However, it would be misleading to focus only on the present. Whitecap Resources’s dividend history shows that it is highly sensitive to extreme market downturns.
In 2020, during the pandemic-induced oil crash, Whitecap cut its dividend by 36%. Back in 2016, amid another energy price collapse, the dividend was slashed by nearly 54%. Each time, share prices also plummeted — falling below $1 during COVID and to around $6 in 2016.
But there’s a silver lining: both times, Whitecap raised its dividend again once markets recovered. That speaks to a management team willing to restore income when the business stabilizes, though it’s clear the payout isn’t immune to commodity price shocks.
Investors should view Whitecap as a high-yield play with built-in volatility. It’s best suited as a satellite position in a diversified portfolio — something to juice income or as a trading position that targets total returns with a focus on price gains, not something to anchor your retirement.
Should you buy now?
Whitecap Resources reports its second-quarter results on July 23, so waiting for that update could offer added clarity on the business performance and guidance.
In the meantime, analysts believe the stock is undervalued by over 20% based on current oil prices and forecasted cash flows. That discount, paired with a secure (for now) 7.6% yield, makes this one of the more compelling income opportunities on the TSX.
Bottom line: Whitecap pays a mouth-watering monthly dividend, backed by current cash flow, solid operations, and a strong balance sheet. Just don’t forget — it’s still an energy stock. If you’ve got the stomach for some bumps and a long-term outlook, this could be one dividend payer worth holding through the cycles.