Income-seeking investors should consider gaining exposure to beaten-down dividend stocks to begin a passive income stream at a low cost. A company’s share price and its dividend yield are inversely related making it crucial for investors to identify quality stocks trading at a discount while offering a tasty yield.
As dividends are not guaranteed, it’s important to hold a portfolio of fundamentally strong stocks positioned to thrive across market cycles.
Here are two such Canadian dividend stocks, each offering a forward yield of more than 6% in 2024.
Whitecap Resources stock
Valued at $6 billion by market cap, Whitecap Resources (TSX:WCP) is an oil and gas stock that has delivered market-beating returns to long-term shareholders. Since its IPO (initial public offering) in July 2010, the TSX dividend stock returned 332% to shareholders, after adjusting for dividends, higher than the TSX index returns of 193% in this period.
Despite these outsized gains, WCP pays shareholders a forward yield of 7.1%, given its annual dividend payout of $0.73 per share. Amid an uncertain macro environment, Whitecap paid $109 million to shareholders via dividends in Q1 2024, up from $87.7 million in the year-ago period.
Whitecap’s growth story is far from over, given it spent close to $400 million in capital expenditures in the March quarter. Lower oil prices meant it reported free funds flow of $384 million in Q1, lower than the year-ago figure of $448 million. With a net debt of $1.5 billion, Whitecap Resources has a strong balance sheet and enough liquidity to fund its expansion plans.
Priced at 11.9 times forward earnings, Whitecap stock is quite cheap and trades at a discount of 30% to consensus price targets. After adjusting for dividends, cumulative returns will be closer to 37%.
Tourmaline Oil stock
Valued at a market cap of $22 billion, Tourmaline Oil (TSX:TOU) is among the largest companies in the world. Another company in the energy sector, Tourmaline, pays shareholders an annual dividend of $1.28 per share, indicating a forward yield of just 2%. However, Tourmaline Oil also pays a special dividend that depends on its quarterly cash flows.
In the last 12 months, its dividend payments have totaled $4.16 per share, indicating a trailing yield of 6.6%. Due to its special dividend program, TOU stock has returned over 400% to shareholders in the last five years.
In Q1 2024, Tourmaline reported operating cash flow of $871 million and capital expenditures of $556.2 million, indicating free cash flow of $310 million, or $0.87 per share. Even though energy prices were quite volatile in Q1, Tourmaline reported earnings of $245 million, or $0.69 per share.
In the next five years, Tourmaline forecasts to generate $8.6 billion in free cash flow as it expects to grow average production by 22%. An expanding cash flow base should translate to consistent dividend hikes in the upcoming decade.
Priced at 8.5 times forward earnings, TOU stock trades 25% below consensus price target estimates, making it a top investment in 2024.
