Whitecap Resources (TSE:WCP) Could Be A Buy For Its Upcoming Dividend




  • In Business
  • 2022-09-25 13:18:22Z
  • By Simply Wall St.
 

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 two days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a 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. In other words, investors can purchase Whitecap Resources' shares before the 28th of September in order to be eligible for the dividend, which will be paid on the 17th of October.

The company's upcoming dividend is CA$0.037 a share, following on from the last 12 months, when the company distributed a total of CA$0.36 per share to shareholders. Last year's total dividend payments show that Whitecap Resources has a trailing yield of 5.2% on the current share price of CA$8.51. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

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. Whitecap Resources has a low and conservative payout ratio of just 6.4% of its income after tax. 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. Luckily it paid out just 15% of its free cash flow last year.

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.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Whitecap Resources has grown its earnings rapidly, up 55% a year for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Whitecap Resources looks like a promising growth company.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Whitecap Resources has seen its dividend decline 3.0% per annum on average over the past 10 years, which is not great to see. Whitecap Resources is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

Final Takeaway

Is Whitecap Resources an attractive dividend stock, or better left on the shelf? 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. Overall we think this is an attractive combination and worthy of further research.

In light of that, while Whitecap Resources has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 1 warning sign with Whitecap Resources and understanding them should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Join A Paid User Research Session
You'll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here

COMMENTS

More Related News

A Look At The Fair Value Of ADM Hamburg Aktiengesellschaft (FRA:OEL)
A Look At The Fair Value Of ADM Hamburg Aktiengesellschaft (FRA:OEL)

Today we will run through one way of estimating the intrinsic value of ADM Hamburg Aktiengesellschaft ( FRA:OEL ) by...

PropNex
PropNex's (SGX:OYY) investors will be pleased with their solid 278% return over the last three years

The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put...

Genting Malaysia Berhad (KLSE:GENM) Third-Quarter Results Just Came Out: Here
Genting Malaysia Berhad (KLSE:GENM) Third-Quarter Results Just Came Out: Here's What Analysts Are Forecasting For Next Year

Shareholders might have noticed that Genting Malaysia Berhad ( KLSE:GENM ) filed its quarterly result this time last...

Axiata Group Berhad Third Quarter 2022 Earnings: Revenues Beat Expectations, EPS Lags
Axiata Group Berhad Third Quarter 2022 Earnings: Revenues Beat Expectations, EPS Lags

Axiata Group Berhad ( KLSE:AXIATA ) Third Quarter 2022 Results Key Financial Results Revenue: RM7.26b (up 11% from 3Q...

Be Sure To Check Out Old Chang Kee Ltd. (Catalist:5ML) Before It Goes Ex-Dividend
Be Sure To Check Out Old Chang Kee Ltd. (Catalist:5ML) Before It Goes Ex-Dividend

Readers hoping to buy Old Chang Kee Ltd. ( Catalist:5ML ) for its dividend will need to make their move shortly, as the...

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply

Comments

Top News: Business