These Stocks Offering Over 6% Are My Top Picks for Immediate Income

Written by Aditya Raghunath on The Motley Fool Canada

Income-seeking investors should consider exposure to declining dividend stocks to start generating a low-cost passive income stream. A company’s stock price and its dividend yield are inversely related, making it crucial for investors to identify quality stocks that are trading at a discount while still offering an attractive yield.

Since dividends are not guaranteed, it is important to own a portfolio of stocks that are fundamentally strong and positioned to thrive through market cycles.

Here are two of those Canadian dividend stocks, each offering a future yield of more than 6% in 2024.

Whitecap Resources Shares

Valued at $6 billion by market capitalization, Whitecap Resources (TSX:WCP) is an oil and gas company that has delivered market-beating returns to long-term shareholders. Since its initial public offering (IPO) in July 2010, the TSX dividend stock has returned 332% to shareholders, after adjusting for dividends, outperforming the TSX Index’s return of 193% over that period.

Despite these outsized gains, WCP pays shareholders a forward yield of 7.1%, given its annual dividend of $0.73 per share. In an uncertain macroeconomic environment, Whitecap paid shareholders $109 million in dividends in the first quarter of 2024, up from $87.7 million in the same period last year.

Whitecap’s growth is far from over, as it spent nearly $400 million on capital expenditures in the March quarter. Lower oil prices helped it report free cash flow of $384 million in the first quarter, down from $448 million a year earlier. With net debt of $1.5 billion, Whitecap Resources has a strong balance sheet and ample liquidity to fund its expansion plans.

At a valuation of 11.9 times forward earnings, Whitecap stock is quite cheap and trades at a 30% discount to consensus price targets. After adjusting for dividends, cumulative yields will be closer to 37%.

Tourmaline Oil Stock

Valued at a market capitalization of $22 billion, Tourmaline oil (TSX:TOU) is among the largest companies in the world. Another energy company, Tourmaline, pays its shareholders an annual dividend of $1.28 per share, which indicates a forward yield of just 2%. However, Tourmaline Oil also pays a special dividend that depends on its quarterly cash flow.

The story continues

Over the past 12 months, its dividend payments have totaled $4.16 per share, indicating a yield of 6.6%. Thanks to its special dividend program, TOU shares have returned over 400% to shareholders over the past five years.

In the first quarter of 2024, Tourmaline reported operating cash flow of $871 million and capital expenditures of $556.2 million, indicating free cash flow of $310 million, or $0.87 per share. Even though energy prices were quite volatile in the first quarter, Tourmaline reported earnings of $245 million, or $0.69 per share.

Over the next five years, Tourmaline expects to generate $8.6 billion in free cash flow as it projects average production growth of 22%. The expansion of its cash base is expected to translate into steady dividend increases over the next decade.

Valued at 8.5 times forward earnings, TOU stock is trading 25% below consensus price estimates, making it a top investment in 2024.

The article These Stocks Yielding Over 6% Are My Top Picks for Immediate Income appeared first on The Motley Fool Canada.

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Further reading

Motley Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Tourmaline Oil and Whitecap Resources. The Motley Fool has a disclosure policy.

2024