Whitecap Resources (TSE:WCP) Is Paying Out A Dividend Of CA$0.0608

Whitecap Resources Inc. (TSE:WCP) will pay a dividend of CA$0.0608 on the 15th of January. Based on this payment, the dividend yield on the company's stock will be 6.5%, which is an attractive boost to shareholder returns.

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Estimates Indicate Whitecap Resources' Could Struggle to Maintain Dividend Payments In The Future

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Whitecap Resources' dividend was only 67% of earnings, however it was paying out 133% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Over the next year, EPS is forecast to fall by 11.4%. If the dividend continues along recent trends, we estimate the payout ratio could reach 111%, which could put the dividend in jeopardy if the company's earnings don't improve.

See our latest analysis for Whitecap Resources

Whitecap Resources Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of CA$0.75 in 2015 to the most recent total annual payment of CA$0.73. Payments have been decreasing at a very slow pace in this time period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Whitecap Resources has been growing its earnings per share at 21% a year over the past five years. Whitecap Resources is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

We should note that Whitecap Resources has issued stock equal to 107% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Whitecap Resources is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good 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. Case in point: We've spotted 2 warning signs for Whitecap Resources (of which 1 shouldn't be ignored!) you should know about. 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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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.