Monthly Dividend Stock In Focus: Whitecap Resources

Up to date on October tenth, 2024 by Felix Martinez

Whitecap Sources (SPGYF) has two interesting funding traits:

#1: It’s providing an above common dividend yield of 6.8%, which is almost 5 instances the 1.3% yield of the S&P 500.
#2: It pays dividends month-to-month as a substitute of quarterly.
Associated: Listing of month-to-month dividend shares

You’ll be able to obtain our full Excel spreadsheet of all month-to-month dividend shares (together with metrics that matter, like dividend yield and payout ratio) by clicking on the hyperlink beneath:

The mixture of an above-average dividend yield and a month-to-month dividend renders Whitecap Sources interesting to particular person traders.

However there’s extra to the corporate than simply these elements. Hold studying this text to study extra about Whitecap Sources.

Enterprise Overview

Whitecap Sources is an oil and gasoline firm targeted on buying, growing, and producing oil and gasoline in Western Canada. The corporate’s growth packages concentrate on Northern Alberta and British Columbia, Central Alberta, and Saskatchewan. Whitecap Sources is headquartered in Calgary, Canada.

Whitecap Sources has some engaging traits. To begin with, its belongings are characterised by low decline charges. That is paramount within the oil and gasoline business, as many producers undergo from excessive pure decline charges.

Supply: Investor Presentation

As well as, Whitecap Sources vastly advantages from the ample reserves of oil and gasoline within the areas wherein the corporate is current. The corporate grew its proved reserves per share by a formidable 49%. This admirable efficiency is in sharp distinction to that of most oil majors, that are struggling to replenish their reserves, not to mention develop them.

As Whitecap Sources’ enterprise is concentrated on oil and gasoline, it has exhibited a extremely unstable efficiency file as a result of dramatic cycles of oil and gasoline costs. The corporate has incurred materials losses in 4 of the final ten years. Subsequently, traders ought to fastidiously determine the a part of the cycle that this enterprise is in earlier than investing on this inventory.

Like virtually all oil and gasoline producers, Whitecap Sources incurred extreme losses (—$3.55 per share) in 2020 as a result of plunge in oil and pure gasoline costs attributable to the pandemic. Nevertheless, due to the large distribution of vaccines worldwide, world oil and gasoline consumption recovered in 2021, and thus, the corporate returned to excessive profitability in that 12 months.

The corporate reported its monetary and operational outcomes for the second quarter and first half of 2024. The corporate achieved sturdy manufacturing progress, with a mean every day output of 177,314 barrels of oil equal per day (boe/d), pushed by success in its Montney and Duvernay belongings and standard belongings in Alberta and Saskatchewan. Revenues from petroleum and pure gasoline elevated to $980.4 million in Q2 2024, up from $797.9 million in Q2 2023. Regardless of a rise in revenues, internet earnings for the primary half of 2024 was $304.3 million, down from $438 million in the identical interval final 12 months.

Whitecap’s sturdy operational outcomes translated right into a stable monetary efficiency, with funds circulate reaching $426 million in Q2 2024. After capital expenditures of $204 million, the corporate generated $223 million in free funds circulate, permitting it to return $110 million to shareholders by way of dividends and share buybacks. The corporate’s stability sheet stays sturdy, with internet debt of $1.3 billion on the finish of the quarter. Moreover, the corporate accomplished the sale of partial infrastructure, receiving $520 million in proceeds, additional strengthening its monetary place.

Trying ahead, Whitecap goals to keep up its manufacturing steering of 167,000–172,000 boe/d and capital spending of $0.9–$1.1 billion for 2024. The corporate plans to make use of $200 million of its asset sale proceeds to repurchase shares, with the purpose of decreasing internet debt to beneath $1 billion by the top of the 12 months. Whitecap’s administration expressed confidence in persevering with its momentum by way of 2024 and into 2025, citing stable asset efficiency and disciplined capital administration.

Development Prospects

Whitecap Sources’ proved reserve lifetime is 13.2 years, which is above the business’s common of about 10 years. As well as, due to the favorable traits of its growth areas, Whitecap Sources is rising its reserve base at a quick tempo.

Supply: Investor Presentation

A double-digit manufacturing progress price is extraordinarily uncommon within the oil and gasoline business. Actually, most oil majors, equivalent to Exxon Mobil (XOM) and Shell (SHEL), have didn’t develop their output for a number of years in a row. This can be a key distinction between Whitecap Sources and most oil and gasoline producers.

Alternatively, Whitecap Sources is delicate to the cycles of the oil and gasoline business. That is clearly mirrored within the firm’s unstable efficiency file. Over the past eight years, Whitecap Sources has grown its earnings per share by solely 6% per 12 months on common and has posted losses in 4 of the eight years.

Whitecap Sources at the moment enjoys sturdy enterprise momentum, not solely due to its excessive manufacturing progress but additionally as a result of Ukrainian disaster and the deep manufacturing cuts carried out by OPEC in an effort of the cartel to help the worth of oil. The worth of pure gasoline has plunged this 12 months, primarily as a consequence of an abnormally heat winter, however the worth of oil has remained above common. Consequently, Whitecap Sources is more likely to proceed thriving this 12 months.

Given the constructive enterprise momentum, the cyclical nature of Whitecap Sources’ enterprise, and final 12 months’s excessive comparability base, we anticipate roughly flat earnings per share in 5 years.

Dividend & Valuation Evaluation

Whitecap Sources is at the moment providing an above-average dividend yield of 6.8%, practically 5 instances the 1.3% yield of the S&P 500. The inventory is thus an thrilling candidate for income-oriented traders, however the latter needs to be conscious that the dividend is just not protected as a result of cyclical nature of the oil and gasoline business.

Whitecap Sources at the moment has an exceptionally low payout ratio of 58% and a good stability sheet, with internet debt of $3 billion, which is barely 65% of the inventory’s market capitalization. Consequently, the inventory’s dividend has a margin of security for the foreseeable future.

Alternatively, as a consequence of Whitecap Sources’ cyclical enterprise, its dividend is just not totally protected. As well as, U.S. traders needs to be conscious that the dividend obtained from this inventory depends upon the trade price between the Canadian greenback and the USD.

In reference to the valuation, Whitecap Sources has traded for less than 8.6 instances its earnings per share within the final 12 months, primarily as a result of above-average earnings posted final 12 months. We assume a good price-to-earnings ratio of 5.0 for the inventory. Subsequently, the present earnings a number of is increased than our assumed honest price-to-earnings ratio. If the inventory trades at its honest valuation stage in 5 years, it’s going to have a headwind of a 5.3% annualized loss in its returns.

Contemplating the flat earnings per share, the 6.8% dividend yield, and a 5.3% annualized compression of valuation stage, Whitecap Sources might supply about 2% common annual whole return over the subsequent 5 years. This isn’t a good anticipated return however we advocate ready for a decrease entry level to reinforce the margin of security and enhance the anticipated return.

Last Ideas

Whitecap Sources has a lot better prospects in rising its manufacturing and reserves than most of its friends and is providing an above-average dividend yield of 6.8%. Due to its wholesome stability sheet, the corporate is just not more likely to minimize its dividend within the close to future, which is more likely to entice some income-oriented traders.

Nevertheless, the corporate’s efficiency file has been extremely unstable as a consequence of its enterprise cycles. Subsequently, traders ought to await a extra engaging entry level.

Furthermore, Whitecap Sources is characterised by low buying and selling quantity. Which means that it could be laborious to ascertain or promote a big place on this inventory.

Don’t miss the assets beneath for extra month-to-month dividend inventory investing analysis.

And see the assets beneath for extra compelling funding concepts for dividend progress shares and/or high-yield funding securities.