The Bank of Canada has slashed interest rates seven times since June 2024 to lower its benchmark interest rate to 2.75%. Moreover, economists are predicting two more rate cuts this year. In this low-interest environment, investing in high-yielding dividend stocks that offer monthly payouts would be an excellent strategy to earn a stable passive income. Further, investors can avoid paying taxes by making these investments through their TFSA (tax-free savings account).
Against this backdrop, let’s examine Whitecap Resources (TSX:WCP), which offers a high dividend yield of 6.9%, to determine whether it would be an attractive addition to your TFSA.
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WCP’s second-quarter performance
WCP develops oil and natural gas assets in Western Canada. It reported an impressive second-quarter performance in July, with solid performances across its unconventional and conventional portfolios, which led to its production exceeding its guidance. The addition of new production assets and downtime optimization contributed to asset-level outperformance. Further, the Calgary-based energy company completed the strategic combination with Veren on May 12th, thereby becoming Canada’s seventh-largest oil and natural gas producer.
Driven by these growth factors, WCP’s daily average production for the second quarter stood at 292,754 boe/d (barrels of oil equivalent per day), which was higher than its guidance. Also, year-over-year, its production per share grew by 5%. Supported by these production increases, the company generated $713 million of fund flows, a 6% per share increase from the previous year’s quarter. Excluding $409 million of capital investments, its free cash flows stood at $304 million for the quarter.
Supported by its healthy cash flows, WCP has returned $298 million to its shareholders through share repurchases and a monthly dividend payout of $0.0608/share in the first two quarters. At the end of the quarter, the company had an unutilized debt capacity of $1.6 billion, allowing it to navigate this uncertain macro environment smoothly. The energy producer also strengthened its balance sheet by disposing of non-core assets, which generated net proceeds of $270 million. It ended the quarter with a healthier net debt-to-annualized funds flow ratio of one. Now, let’s look at its growth prospects.
WCP’s growth prospects
Despite the global shift toward green energy, ExxonMobil projects that oil and natural gas will still make up 55% of the energy mix by 2050, only slightly down from 56% in 2024. Therefore, the oil and natural gas producers, including WCP, could benefit from rising energy demand.
Additionally, WCP has made significant progress in capturing early synergies by integrating its acquired assets and personnel of Veren, thereby lowering its corporate expenses and improving its credit profile. The management is also optimistic about achieving additional capital efficiency improvements and operating cost reductions over the next 6 to 12 months. Further, the company has also planned to make a capital investment of around $1.2 billion in the second half of this year, boosting its production capabilities.
Amid these growth initiatives, WCP expects its average daily production for the second half of 2025 to come between 363,000 BOE/d and 368,000 BOE/d, representing a substantial improvement from its first half. Additionally, the company expects organic growth of 3–5% over the long term. Considering all these factors, I expect the uptrend in WCP’s financials to continue, thereby allowing it to continue rewarding its shareholders with healthy dividends.
Investors’ takeaway
WCP has underperformed the broader equity market this year, with its stock price increasing by around 10% compared to an 18.4% increase in the S&P/TSX Composite Index. It currently trades at attractive NTM (next 12 months) price-to-sales and price-to-book multiples of 2.1 and 1.2, respectively. Considering its healthy growth prospects and high yield, I believe WCP would be an ideal addition to your TFSA.
