These Stocks Offering Over 6% Are My Top Picks for Immediate Income

TSX energy stocks such as Tourmaline Oil pay shareholders a tasty dividend in 2024. Is the dividend stock a good buy?

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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.

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 Tourmaline Oil and Whitecap Resources. The Motley Fool has a disclosure policy.

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