For a Shot at $5,000/Year in Passive Income, Buy 6,850 Shares of This TSX Stock

Whitecap Resources is a monthly dividend stock that offers you a tasty dividend yield while trading at a cheap valuation.

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Investing in quality dividend stocks with an attractive yield can help you earn a passive-income stream for life. However, as dividends are not guaranteed, it’s essential to identify companies that enjoy steady cash flows across market cycles and a sustainable payout ratio. Ideally, the dividend-paying company should have enough flexibility to reinvest in growth projects or acquisitions, strengthen the balance sheet, and increase these payouts over time.

One such monthly paying dividend stock is Whitecap Resources (TSX:WCP), which currently pays shareholders an annual dividend of $0.73 per share. So, to earn $5,000 per year in passive income, you need to buy 6,850 shares of Whitecap worth $70,898 today.

Whitecap Resources$10.356,850$0.061$417.85Monthly

Valued at $6.2 billion by market cap, Whitecap Resources is an oil and gas company focused on the acquisition, development, and production of oil and gas assets in Western Canada.

Whitecap reports strong Q1 results

Whitecap has a strong first quarter (Q1) with an average production of 169,660 boe/d (barrels of oil equivalent per day), above its forecast of 163,500 boe/d. The company achieved higher production, even as it spent $393 million in capital expenditures, which was lower than its forecast of $430 million.

Whitecap stated that drilling peaked at 15 rigs in Q1 while it completed the commissioning and start-up of its owned and operated Musreau battery.

Whitecap Resources explained production outperformance continued to exceed expectations across its West and East divisions in Q1. It has also raised annual production guidance by 2,000 boe/d to between 167,000 and 172,000 boe/d for 2024. Moreover, Whitecap expects to invest between $900 million and $1.1 billion in capital expenditures this year.

A steady dividend

Whitecap Resources reported a funds flow of $384 million, or $0.64 per share. Comparatively, it returned $109 million to shareholders in Q1, indicating a payout ratio of less than 30%. The oil and gas company expects to report a funds flow of $1.7 billion, or $2.82 per share, and pay shareholders an annual dividend of $0.73 per share.

A low payout ratio offers Whitecap the flexibility to reinvest in organic growth and lower balance sheet debt. Whitecap increased Q1 dividends by 24% year over year, which is exceptional given the current environment, that is challenging and volatile. In the last three years, Whitecap has more than tripled its dividends, enhancing the effective yield significantly.

According to Whitecap, strong crude oil prices contributed to strong netbacks in Q1. Cash flow netbacks for energy companies are the difference between sales and the total production costs, operating expenses, interest expenses, and transaction costs calculated on a per boe basis.

Is Whitecap stock undervalued?

Whitecap Resources is fundamentally strong and ended Q1 with a net debt of $1.5 billion, indicating a net-debt-to-earnings before interest, tax, depreciation, and amortization ratio of 0.7 times.

Analysts tracking WCP stock expect the company to end Q1 with adjusted earnings of $1.01 per share, indicating a forward earnings multiple of 10.3 times, which is quite cheap. Bay Street forecasts WCP stock to surge roughly 30% in the next 12 months. After adjusting for dividends, total returns should be closer to 37%.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Whitecap Resources. The Motley Fool has a disclosure policy.

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