Idle cash offers instant liquidity but does not generate or provide returns. However, some people with cash reserves and low-risk tolerance invest in guaranteed investment certificates (GICs). GICs let you earn interest on your money within a specified period and return the capital on maturity.
There’s stability with GICs but the cons are limited returns and the lock-in period. Dividend stocks are riskier, although the financial gains are much higher over a longer investment timeframe. Moreover, you have regular cash flow streams from dividends depending on the payout frequency.
Top dividend stock
A top Canadian dividend stock I’d choose over GICs any day is Whitecap Resources (TSX:WCP). The dividend yield is higher than the best GIC rate available (4.7% to 4.8% for one year), with no periodic interest payments. In addition to the juicy 7% dividend yield, the energy stock pays monthly dividends.
As of this writing, WCP trades at $10.49 per share (+24.1%) and outperforms the TSX (+13.9%) year-to-date. The 6.3 billion oil and liquids-weighted growth company has a business growth plan to deliver $4 billion in free funds flow by 2029.
Organic production growth
Whitecap has two operating divisions: the East covers the Central Alberta region, and the West comprises the Kaybob, Smoky, and Peace River Arc regions. The five-year plan (2025–2029) includes a $6 billion capital investment forecasted to produce 215,000 barrels of oil equivalent per day (boe/d) in the fifth year.
At the end of Q1 2024, total production is 169,500 boe/d. Aside from the $4 billion in free funds flow, the target is $3 billion of returns to shareholders within the period and $1 billion of debt repayment.
Management expects free funds flow to drive strong returns and generate significant liquidity, resulting in financial flexibility. Whitecap can then hit its financial priorities like maintaining a base dividend ($0.73 per share annually) or $2.2 billion ($3.65 per share) over the next five years. Technological advancements should reduce operating costs by 5% or $250 million.
Financial highlights
In Q2 2024, total revenue and net income increased 12.7% and 28.3% to $905.4 million and $244.5 million, respectively, compared to Q2 2023. Free funds flow climbed 11.4% year-over-year to $222.6 million, while the average production volumes rose 20% to 177,314 boe/d.
Year-to-date, the average production volumes reached 173,487 boe/d, 15% higher than a year ago. Whitecap has to contend with highly competitive exploration and production activities in the Western Canadian Sedimentary Basin.
Other challenges and business risks include finding and developing oil and gas reserves at economic costs and commodity price fluctuations. Nonetheless, dividends declared in the six months ending June 30, 2024 increased 19.7% to $218.3 million compared to last year.
Income advantage
GICs are safe because the principal or initial deposit comes back whole plus interest. However, a top dividend payer like Whitecap Resources still has the income advantage. You earn two ways, too, from dividends and price appreciation. The energy stock has rewarded investors with a 116.6% overall return in three years, a 29.3% compound annual growth rate (CAGR).
