Monthly dividend stocks are extremely popular among income-seeking investors as you can easily create a recurring revenue stream. As dividend payouts are not guaranteed, it’s essential to identify companies that have a sustainable payout ratio, a robust balance sheet, and stable cash flows, allowing them to maintain payouts across business cycles.
One such monthly TSX dividend stock is Whitecap Resources (TSX:WCP), currently offering you a forward yield of almost 6%.
Is Whitecap Resources stock a buy or a sell?
An oil and gas company focused on the acquisition, development and production of petroleum and natural gas properties in Western Canada, Whitecap Resources is valued at a market cap of $6 billion.
In Q1 2023, it closed the previously announced disposition of non-core assets for a consideration of $389.5 million. It also closed the TimberRock acquisition for $205.8 million while acquiring XTO Energy for $1.9 billion in the March quarter.
With these acquisitions, as well as an ongoing drilling program, Whitecap increased average production volumes by 17% to 155,124 boe/d in Q1. The company expects to end 2023 with a production volume of 170,000 boe/d.
In Q1, Whitecap Resources reported a funds flow of $448 million and capital expenditures of $254 million, indicating free funds flow of $194 million. WCP paid investors $88 million in dividends, which means its payout ratio was well below 50%. After accounting for share repurchases, Whitecap returned 62% of free funds flow to investors in Q1.
Whitecap Resources currently pays shareholders annual dividends of $0.58 per share, translating to a monthly payout of $0.0483 per share and a yield of 5.9%. It aims to increase these payouts by more than 30% to $0.73 per share on an annual basis.
The company will deploy at least $900 million in capital expenditures in 2023, expanding its base of cash-generating assets and driving future cash flows and dividends higher. In the last four years, these dividend payouts have almost doubled, making WCP stock ideal for income investors.
What next for WCP stock and investors?
Whitecap Resources is part of the highly cyclical energy sector, which means it is vulnerable to fluctuations in oil prices. In Q1 of 2023, Whitecap reported net income of $262.6 million, compared to the year-ago net income of $652.3 million, due to lower commodity prices.
Despite a volatile pricing environment and elevated inflation levels, Whitecap increased dividends by 48% year over year to $351 million in the last four quarters.
The company is equipped with a top-tier balance sheet, low debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio, and significant liquidity to manage commodity price volatility.
In the next five years, Whitecap aims to increase production to 200,000 boe/d, indicating a growth rate of 5% on an annual basis. The Calgary-based energy company estimates free funds flow to touch $4.5 billion, or $7.35 per share, by the end of 2027, allowing it to increase dividend payouts easily.
WCP stock is priced at 7.2 times forward earnings, which is quite cheap. Analysts also remain bullish on WCP and expect shares to gain 43% in the next 12 months.