Several Canadian companies with monthly dividend payouts trade on the TSX. However, just a handful of these stocks are fundamentally strong and can deliver outsized gains to long-term investors. As dividend payments are not guaranteed, it’s crucial to analyze a company’s financials to determine whether the payout is sustainable across market cycles.
Moreover, the payout ratio should be sustainable enough to allow the company to target accretive acquisitions, service debt obligations, lower balance sheet debt, and consistently raise dividends.
One such TSX monthly dividend stock is Whitecap Resources (TSX:WCP). Valued at $6 billion by market cap, Whitecap Resources pays shareholders an annual dividend of $0.73 per share, indicating a forward yield of 7.3%.
The bull case for Whitecap Resources stock
Whitecap Resources is an oil and liquids-weighted company. Founded in September 2009, Whitecap has aggregated an enviable light oil resource base, providing it with the foundation for continued growth and results on a per-share basis.
Its portfolio of assets has stable production and low base declines, resulting in a predictable cash flow stream for monthly dividends.
Since 2010, Whitecap Resources has increased its funds flow at a compound annual growth rate of 13% and production by 11%. The company expects to end 2024 with a production of 169,500 barrels of oil equivalent per day (boe/d) and generate $600 million in free funds flow. It is also expected to invest $1 billion in capital expenditures, which should drive future earnings and higher dividends.
Given its annual dividend payout of $0.73 per share, Whitecap Resources’s dividend expenses will amount to roughly $450 million, indicating a payout ratio of 75%. It also aims to use the excess cash flow to lower long-term debt and end 2024 with a net debt of $1 billion.
A focus on dividend growth
In the second quarter (Q2) of 2024, Whitecap generated a funds flow of $426 million, or $0.71 per share, while free funds flow stood at $223 million or $0.37 per share, indicating a payout ratio of less than 50%. Its light oil and condensate production base benefitted from crude oil prices averaging over $110 per barrel on a Canadian dollar basis. Its operating cost decreased to $13.49 per boe in Q2, showcasing the company’s higher production and focus on cost savings.
Last October, Whitecap Resources announced a 26% year-over-year increase in monthly dividends. However, its growth story is far from over, as it expects to end 2029 with a production capacity of 215,000 boe/d.
In this period, its capital expenditures will total $6 billion, while free funds flow is forecast at $4 billion. Whitecap Resources expects to allocate $3 billion of its funds flow towards dividends and $1 billion to reduce its debt. This means that Whitecap’s dividend payout will surge by almost eight times in the next five years.
Priced at 5.6 times forward earnings, Whitecap stock is cheap, given its tasty dividend yield and substantial cash flow expansion.
The Foolish takeaway
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Whitecap Resources | $9.97 | 1,644 | $0.061 | $100.28 | Monthly |
To generate $100 per month in monthly dividends, you need to purchase 1,644 shares of Whitecap Resources. If the company increases its dividends by 10% annually, your monthly dividend payout should double to $200 in the next seven years, significantly enhancing the yield at cost.
