Dividends matter to investors, especially those that treat the payouts as regular income. The payout frequency is usually quarterly, but one in the energy sector and an industrial real estate investment trust (REIT) can cut you a check each month.
Except for market capitalization, Whitecap Resources (TSX: WCP) and Nexus Industrial (TSX: NXR.UN) are nearly identical in share price (less than $10), dividend yield (more than 7%), and payout ratio (36%). You can invest in both for diversification or in the sector you are more comfortable with.
Long-term sustainability and profitability
Whitecap Resources is the only constituent in the energy sector that pays monthly dividends, if I’m correct. At $8.56 per share, the dividend yield is 7.42%, while the payout ratio is 36.32%. Assuming you own 817 WCP shares, your $6,993.52 investment will generate $43.24 in monthly passive income. Acquiring more shares can boost your monthly income.
The $5.19 billion oil-weighted growth company operates in Northwest Alberta, Central Alberta, East and West Saskatchewan, and Weyburn. It boasts a premium asset base in its core areas of operations. Management says the assets are growth and cash-generation engines.
The focus in 2024 is on long-term sustainability and profitability to drive increasing returns for shareholders. With the board-approved capital budget of $1 billion to $1.2 billion, total production should increase by about 5%.
Besides a 26% dividend hike in the third quarter (Q3) of 2023, Whitecap reduced net debt by 45.7% to $1.26 billion versus Q3 2022. Because of this milestone, the company will allot or return 75% of free funds flow to shareholders, including a sustainable base dividend ($0.73 per share annually) and share repurchases.
Whitecap expects its 2024 capital budget to generate $1.8 billion of funds flow and $700 million of free funds flow, net of capital expenditures, in 2024. While commodity prices are robust, the volatile macroenvironment is a headwind for industry players. Nevertheless, Whitecap looks forward to the completion of the first liquids natural gas project or LNG Canada in 2025.
Most stable asset
REIT investments should pick up in 2024 as inflation eases and the Bank of Canada starts rate cuts. Nexus started strong in January and is now up 5.07% year to date. At $8.50 per share, the dividend offer is a juicy 7.54%. This $793.15 million REIT owns and operates industrial properties, the real estate sector’s most stable and favoured asset class.
In the first three quarters of 2023, net income, property revenues, and net operating income increased 14.6%, 15.3%, and 16.8% year over year to $157.9 million, $115.6 million, and $82.7 million, respectively. The occupancy rate at the end of Q3 2023 was 97%.
According to its chief executive officer, Kelly Hanczyk, the completion of committed developments will generate outsized returns. At the same time, the proceeds from the sale of retail and office assets will strengthen Nexus’s balance sheet.
Payout advantage
The beauty of a monthly payout cycle is that any investment amount transforms into recurring monthly cash flows or income streams. If the objective is to build wealth or a nest egg, money compounds faster when you reinvest dividends 12 times a year instead of four. Whitecap Resources and Nexus REIT have the payout advantage.
