Month-to-month Dividend Inventory In Focus: Whitecap Sources

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 an alternative of quarterly.
Associated: Record of month-to-month dividend shares

You possibly can 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 mix of an above-average dividend yield and a month-to-month dividend renders Whitecap Sources interesting to particular person buyers.

However there’s extra to the corporate than simply these elements. Maintain studying this text to be taught extra about Whitecap Sources.

Enterprise Overview

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

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

Supply: Investor Presentation

As well as, Whitecap Sources enormously 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 powerful 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 targeted on oil and gasoline, it has exhibited a extremely risky efficiency report because of the dramatic cycles of oil and gasoline costs. The corporate has incurred materials losses in 4 of the final ten years. Subsequently, buyers ought to rigorously establish the a part of the cycle that this enterprise is in earlier than investing on this inventory.

Like nearly all oil and gasoline producers, Whitecap Sources incurred extreme losses (—$3.55 per share) in 2020 because of the plunge in oil and pure gasoline costs brought on by the pandemic. Nonetheless, 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 yr.

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 day by day output of 177,314 barrels of oil equal per day (boe/d), pushed by success in its Montney and Duvernay belongings and traditional 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, web earnings for the primary half of 2024 was $304.3 million, down from $438 million in the identical interval final yr.

Whitecap’s sturdy operational outcomes translated right into a strong 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 means of dividends and share buybacks. The corporate’s stability sheet stays sturdy, with web 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.

Wanting ahead, Whitecap goals to take care of 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 aim of decreasing web debt to beneath $1 billion by the tip of the yr. Whitecap’s administration expressed confidence in persevering with its momentum by means of 2024 and into 2025, citing strong asset efficiency and disciplined capital administration.

Progress 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. The truth is, most oil majors, akin to Exxon Mobil (XOM) and Shell (SHEL), have didn’t develop their output for a number of years in a row. It is a key distinction between Whitecap Sources and most oil and gasoline producers.

Then again, Whitecap Sources is delicate to the cycles of the oil and gasoline business. That is clearly mirrored within the firm’s risky efficiency report. Over the last eight years, Whitecap Sources has grown its earnings per share by solely 6% per yr on common and has posted losses in 4 of the eight years.

Whitecap Sources presently enjoys sturdy enterprise momentum, not solely due to its excessive manufacturing progress but in addition because of the Ukrainian disaster and the deep manufacturing cuts carried out by OPEC in an effort of the cartel to assist the worth of oil. The value of pure gasoline has plunged this yr, primarily attributable to an abnormally heat winter, however the value of oil has remained above common. In consequence, Whitecap Sources is more likely to proceed thriving this yr.

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

Dividend & Valuation Evaluation

Whitecap Sources is presently 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 buyers, however the latter ought to be conscious that the dividend will not be secure because of the cyclical nature of the oil and gasoline business.

Whitecap Sources presently has an exceptionally low payout ratio of 58% and an honest stability sheet, with web debt of $3 billion, which is simply 65% of the inventory’s market capitalization. In consequence, the inventory’s dividend has a margin of security for the foreseeable future.

Then again, attributable to Whitecap Sources’ cyclical enterprise, its dividend will not be solely secure. As well as, U.S. buyers ought to be conscious that the dividend obtained from this inventory will depend on the alternate price between the Canadian greenback and the USD.

In reference to the valuation, Whitecap Sources has traded for under 8.6 instances its earnings per share within the final 12 months, primarily because of the above-average earnings posted final yr. We assume a good price-to-earnings ratio of 5.0 for the inventory. Subsequently, the present earnings a number of is larger than our assumed honest price-to-earnings ratio. If the inventory trades at its honest valuation degree 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 degree, Whitecap Sources might supply about 2% common annual whole return over the subsequent 5 years. This isn’t an honest anticipated return however we suggest ready for a decrease entry level to boost the margin of security and improve the anticipated return.

Ultimate 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%. Because of its wholesome stability sheet, the corporate will not be more likely to lower its dividend within the close to future, which is more likely to entice some income-oriented buyers.

Nonetheless, the corporate’s efficiency report has been extremely risky attributable to its enterprise cycles. Subsequently, buyers ought to look forward to a extra enticing entry level.

Furthermore, Whitecap Sources is characterised by low buying and selling quantity. Which means that it might be exhausting 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.