Are you looking for ways to generate passive income by using your savings? Canadians have plenty of opportunities to make that happen. Stock market investing, particularly investing in the top monthly dividend-paying stocks, can be an excellent approach. The key to success is picking high-quality investments from the right industry with the kind of underlying business that can support regular dividend distributions.
The Canadian energy sector has plenty of stocks you can consider for this purpose. One such energy stock that can be an excellent investment is Whitecap Resources Inc. (TSX: WCP). WCP pays $0.0608 per share every month, translating to an annualized 7.4% dividend yield.
Trading at $9.93 per share at the time of writing, a hypothetical $15,000 investment in the stock would generate around $1,100 per year, or around $91 per month. However, is this a sustainable dividend, or is it too good to be true?
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Reliability of monthly payouts
When you see a stock offering high-yielding dividends, it can seem like an attractive investment. However, you must determine whether the underlying business can sustain those payouts to assess whether it can be a good investment for a long-term strategy. The short answer is: Yes. As of right now, WCP stock looks well-positioned to continue paying those high-yielding dividends.
Whitecap relies on its earnings and free cash flows to pay the monthly distributions. In the last 12 months, WCP has paid out less than 70% of its free cash flow and less than 50% of its net income. Since the breakeven price for West Texas Intermediate is around US$55 per barrel and current oil prices are at US$68 per barrel, Whitecap Resources has the cushion it needs to sustain its payouts.
In 2025, WCP plans to produce up to 300,000 barrels of oil equivalent per day, translating to roughly $2.8 billion in funds flow. The company’s capital expenses are slated to come in at around $2 billion, which gives it plenty of room to pay its investors without too much financial pressure on the balance sheet.
The Whitecap Resources management is also planning to buyback shares this year, further indicating its ability to continue paying investors without fail.
Are there any risks?
Stock market investing is inherently risky. There are no risk-free investments. However, you can look closer at potential investments to identify whether the risk level suits your risk tolerance. With WCP stock, the track record shows a correlation between market downturns and its ability to pay out. The 2020 pandemic-fueled crash in oil prices saw WCP stock slash its payouts by 35%. Earlier, in 2016, oil price weakness led to a 54% cut in payouts.
However, Whitecap Resources stock emerged stronger on the other side and managed to raise dividends once the dust settled.
Foolish takeaway
As of this writing, Whitecap Resources stock trades for $9.93 per share and its high-yielding dividends seem too attractive to ignore. I think the mouthwatering dividends are backed by solid cash flows, a good balance sheet, and strong future earnings potential. WCP can be a good investment at current levels.
