Yahoo Finance Whitecap Resources (TSE:WCP) Could Be A Buy For Its Upcoming Dividend
Whitecap Resources Inc. (TSE:WCP) is about to trade ex-dividend in the next three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Whitecap Resources' shares on or after the 30th of January, you won't be eligible to receive the dividend, when it is paid on the 15th of February.
The company's upcoming dividend is CA$0.048 a share, following on from the last 12 months, when the company distributed a total of CA$0.44 per share to shareholders. Calculating the last year's worth of payments shows that Whitecap Resources has a trailing yield of 5.2% on the current share price of CA$11.08. 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 investigate whether Whitecap Resources can afford its dividend, and if the dividend could grow.
See our latest analysis for Whitecap Resources
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Whitecap Resources paid out just 13% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 15% of its free cash flow as dividends last year, which is conservatively low.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. 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 39% 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. It looks like the Whitecap Resources dividends are largely the same as they were 10 years ago.
Final Takeaway
From a dividend perspective, should investors buy or avoid Whitecap Resources? We love that Whitecap Resources is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. It's a promising combination that should mark this company worthy of closer attention.
On that note, you'll want to research what risks Whitecap Resources is facing. For example, Whitecap Resources has 4 warning signs (and 1 which is significant) we think you should know about.
If you're in the market for strong dividend payers, we recommend checking our selection of top 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.
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