Dividend payers are hot plays in Q4 2024 because their share prices tend to rise as interest rates fall. Investors can earn in two ways: price appreciation and dividend income. Today, the energy sector is fertile ground for income-focused investors, and Whitecap Resources (TSX:WCP) is one of the best choices.
The energy stock is irresistible for four compelling reasons. Besides its stable performance and juicy dividend yield, it pays cash every month, not quarterly. Moreover, WCP is still relatively cheap at $10.51 per share.
Canadian energy industry outlook
When you’re investing in oil and gas producers, as well as energy equipment and services providers, keep an eye on supply constraints, growing demand, and heightened geopolitical risks. Market experts think crude prices will remain elevated in 2024 and support the profitability of industry players, including Whitecap Resources.
If you recall, the energy sector dominated the market in 2022 but pulled back last year due to the inflationary environment. As of this writing, the sector is up 15% year-to-date, with Whitecap Resources outperforming the sector with a 18% gain.
Growth-oriented
Whitecap Resources is a $6.2 billion oil & liquids-weighted growth company that develops and produces light, sweet crude oil. Management’s investment pitch is that the premium light oil resource base is a solid foundation for continued growth. It is the source of predictable cash flow streams for monthly dividend payments.
For 2024, Whitecap expects a $1 billion capital investment to produce 169,500 barrels of oil equivalent per day (boe/d) and generate $600 million in free funds flow. The net debt target by year-end is $1 billion, shrinking from $1.35 billion in 2023.
Management is also forward-looking. The five-year (2024 to 2029) $6 billion capital investment plan projects a 5% average annual growth rate of 215,000 boe/d and $4 billion in free funds flow. Furthermore, Whitecap would have zero debt in five years.
Financial performance
In Q2 2024, total revenue and net income increased 14.6% and 39.4%, to $905.4 million and $244.5 million respectively, compared with Q2 2023. Whitecap’s average production volumes increased 20% to 177,314 boe/d from a year ago, above the full-year target and internal forecast of 170,500 boe/d.
The strong operational momentum was highly noticeable across all assets, from Montney and Duvernay to Alberta and Saskatchewan. Whitecap will continue with its disciplined risk mitigation strategy. It involves oil and natural gas hedges for downside protection to support dividend and maintenance production.
Dividend payment
Whitecap Resources takes pride in its disciplined return of capital to shareholders through dividend payments and share repurchases. If you invest today, you can partake in the 7% dividend yield and earn a $0.73 per share over the course of one year. A $7,000 investment at recent prices thus transforms into $41 in monthly passive income.
As of August 31, 2024, Whitecap Resources has repurchased $706 million worth of shares. The latest dividend hike in October 2023 was 26%, but there’s no announcement of an increase this year. Nonetheless, the good news is that the monthly dividends should be safe and sustainable, owing to the company’s reasonable 55.4% payout ratio.
