6.9 Percent Dividend Yield? I’m Buying This TSX Passive-Income Stock in Bulk!

Whitecap Resources offers an attractive 6.9% dividend yield backed by growing production and sustainable free cash flow. Is the energy stock a buy?

| More on:
dividends can compound over time

Source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Investing in quality dividend stocks with a consistent growth profile is a proven strategy to generate a consistent stream of dividend income and long-term capital gains.

One such TSX dividend stock with a forward yield of over 6% is Whitecap Resources (TSX:WCP), which acquires and develops petroleum and natural gas properties in Canada. Whitecap is among the most popular dividend stocks on the TSX, with more than 700,000 barrels of oil equivalent in proved plus probable reserves. Let’s see why.

Created with Highcharts 11.4.3Whitecap Resources + iShares S&p/tsx 60 Index ETF PriceZoom1M3M6MYTD1Y5Y10YALL17 Dec 201916 Dec 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '240www.fool.ca

Whitecap’s strong performance in Q3

Whitecap delivered strong operating results while maintaining a robust dividend program in the third quarter (Q3) of 2024. Its production of 173,302 barrels of oil equivalent per day in the September quarter exceeded initial guidance.

Strong production in Q3 allowed Whitecap to report an adjusted funds flow of $409 million, or $0.68 per share, while its free funds flow stood at $136 million, which indicates it spent over $270 million in capital expenditures.

In the first nine months of 2024, its free funds flow totalled $136 million. Notably, the company distributed around $225 million to shareholders in Q3 via dividends and buybacks. Whitecap also ended the quarter with a net debt of $1.4 billion, indicating a debt-to-earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio of just 0.6 times.

Its free cash flow and dividend expense indicate Whitecap’s payout ratio is roughly 80%, providing it with the flexibility to reduce long-term debt and strengthen the balance sheet. Its capital expenditures should also drive future earnings and cash flow higher, making the TSX stock a top investment choice for passive-income investors.

What’s next for the TSX dividend stock?

Whitecap Resources has provided strong guidance as it expects production to expand by 5% annually to 178,000 barrels of oil equivalent per day in 2025.  Moreover, it aims to spend over $1 billion in capital expenditures, while funds flow is forecast at $1.65 billion.

Armed with an investment-grade balance sheet, Whitecap is looking to issue bonds and diversify its debt structure as it focuses on operating efficiencies amid a challenging macro environment.

Analysts tracking WCP stock expect the company to end 2025 with an adjusted funds flow per share of $3.13, up from $2.89 in 2024. It indicates that Whitecap should continue to expand its dividend payout over the next 12 months. Whitecap pays shareholders a monthly dividend, which has more than quadrupled since the COVID-19 pandemic.

Given consensus price target estimates, Whitecap trades at a discount of 35% right now. If we include its dividends, total returns could be over 40%. WCP stock has returned 100% to shareholders in the last five years. However, cumulative returns are closer to 170% if we account for dividend reinvestments.

The bottom line

Whitecap Resources continues to execute its operational and financial objectives effectively. The combination of growing production, strong shareholder returns, and a conservative balance sheet positions the company well for 2025 and beyond.

A widening base of cash-generating assets and a disciplined capital-allocation strategy suggest that Whitecap appears well-positioned to maintain its strong performance. Moreover, its commitment to both dividends and share buybacks offers investors multiple ways to benefit from Whitecap’s success.

Should you invest $1,000 in Whitecap Resources right now?

Before you buy stock in Whitecap Resources, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Whitecap Resources wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

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 Whitecap Resources. The Motley Fool has a disclosure policy.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

Why I’d Add This Top TSX Dividend Stock to My TFSA During the Current Dip

The market is full of volatility right now. Fortunately, this top TSX dividend trades at a discount and pays a…

Read more »

Pile of Canadian dollar bills in various denominations
Dividend Stocks

Invest $20,000 in 2 TSX Stocks for $1,421.09 in Passive Income

Are you looking to bump up your passive income? Then consider these two TSX stocks.

Read more »

A plant grows from coins.
Dividend Stocks

Where I’d Invest in Canadian Value Stocks for Long-Term Compounding

When markets plunge, Warren Buffett's wisdom shines: Get greedy when others are fearful. Canadian value stocks like Scotiabank await patient…

Read more »

analyze data
Dividend Stocks

How I’d Invest $28,000 in Canadian Natural Resource Stock to Amass Personal Wealth

Investing in TSX dividend stocks such as Enbridge can help you earn a passive-income stream in 2025.

Read more »

hand stacks coins
Dividend Stocks

Got $400? How I’d Start Building Income With 3 High-Yield Stocks for the Long Term

These high-yield dividend stocks have a solid payout history, making them compelling investments to generate passive income.

Read more »

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."
Dividend Stocks

I’d Put $15,000 in These 3 Dividend-Growth Champions for Increasing Income Potential

Want to offset some volatility? Here are three defensive dividend-growth champions that can generate a juicy yield right now.

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

Transform Your TFSA Into a Cash-Creating Machine With $7,000

Discover how the Tax-Free Savings Account can be your golden goose for generating cash without losing your investment.

Read more »

monthly desk calendar
Dividend Stocks

How I’d Invest $10,000 in Canadian Value Stocks for Monthly Dividend Income

A $10,000-diversified portfolio of value stocks focusing on dividend safety, yield, growth, and payment schedules can provide a reliable source…

Read more »