Whitecap Resources Inc. (TSE:WCP) will increase its dividend from last year’s comparable payment on the 15th of February to CA$0.0483. The payment will take the dividend yield to 3.9%, which is in line with the average for the industry.
Check out our latest analysis for Whitecap Resources
Whitecap Resources’ Earnings Easily Cover The Distributions
Unless the payments are sustainable, the dividend yield doesn’t mean too much. However, prior to this announcement, Whitecap Resources’ dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.
EPS is set to fall by 63.3% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 38%, which we are pretty comfortable with and we think is feasible on an earnings basis.
TSX:WCP Historic Dividend January 21st 2023
Whitecap Resources’ Track Record Isn’t Great
The dividend hasn’t seen any major cuts in the last 10 years, but it has slowly been decreasing. The annual payment during the last 10 years was CA$0.60 in 2013, and the most recent fiscal year payment was CA$0.44. The dividend has shrunk at around 3.0% a year during that period. Generally, we don’t like to see a dividend that has been declining over time as this can degrade shareholders’ returns and indicate that the company may be running into problems.
The Dividend Looks Likely To Grow
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Whitecap Resources has impressed us by growing EPS at 26% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.
We Really Like Whitecap Resources’ Dividend
Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The earnings easily cover the company’s distributions, and the company is generating plenty of cash. We should point out that the earnings are expected to fall over the next 12 months, which won’t be a problem if this doesn’t become a trend, but could cause some turbulence in the next year. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we’ve come across 4 warning signs for Whitecap Resources you should be aware of, and 1 of them is significant. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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