Should You Buy Whitecap Resources Inc. (TSE:WCP) For Its Upcoming Dividend?

Simply Wall St · 10/26/2023 13:59

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Whitecap Resources Inc. (TSE:WCP) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Whitecap Resources investors that purchase the stock on or after the 30th of October will not receive the dividend, which will be paid on the 15th of November.

The company's next dividend payment will be CA$0.061 per share, on the back of last year when the company paid a total of CA$0.58 to shareholders. Looking at the last 12 months of distributions, Whitecap Resources has a trailing yield of approximately 5.2% on its current stock price of CA$11.24. If you buy this business for its dividend, you should have an idea of whether Whitecap Resources's dividend is reliable and sustainable. As a result, readers should always check whether Whitecap Resources has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Whitecap Resources

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see Whitecap Resources paying out a modest 29% of its earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It distributed 27% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Whitecap Resources's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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TSX:WCP Historic Dividend October 26th 2023

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Whitecap Resources has grown its earnings rapidly, up 42% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Whitecap Resources's dividend payments are effectively flat on where they were 10 years ago.

To Sum It Up

Is Whitecap Resources worth buying for its dividend? Whitecap Resources has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Whitecap Resources looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example - Whitecap Resources has 1 warning sign we think you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.