![]() We're not keen on the fact that Whitecap Resources paid out such a high percentage of its income, although its cashflow is in better shape. To summarise, shareholders should always check that Whitecap Resources's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Every investor should make an assessment of whether the company is taking steps to stabilise the situation. If earnings continue to decline, the dividend may come under pressure. Over the past five years, it looks as though Whitecap Resources's EPS have declined at around 29% a year. Growing EPS can help maintain or increase the purchasing power of the dividend over the long run. The other half of the dividend investing equation is evaluating whether earnings per share (EPS) are growing. We struggle to make a case for buying Whitecap Resources for its dividend, given that payments have shrunk over the past seven years. This works out to be a decline of approximately 7.7% per year over that time. During the past seven-year period, the first annual payment was CA$0.60 in 2012, compared to CA$0.34 last year. Looking at the data, we can see that Whitecap Resources has been paying a dividend for the past seven years. Not only is your income cut, but the value of your investment declines as well - nasty. One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. We update our data on Whitecap Resources every 24 hours, so you can always get our latest analysis of its financial health, here. With EBIT of 1.74 times its interest expense, Whitecap Resources's interest cover is starting to look a bit thin. We calculated its interest cover by measuring its earnings before interest and tax (EBIT), and dividing this by the company's net interest expense. Whitecap Resources has net debt of 1.53 times its EBITDA, which is generally an okay level of debt for most companies. ![]() Net debt to EBITDA measures total debt load relative to company earnings (lower = less debt), while net interest cover measures the ability to pay interest on the debt (higher = greater ability to pay interest costs). A rough way to check this is with these two simple ratios: a) net debt divided by EBITDA (earnings before interest, tax, depreciation and amortisation), and b) net interest cover. Story continues Is Whitecap Resources's Balance Sheet Risky?Īs Whitecap Resources has a meaningful amount of debt, we need to check its balance sheet to see if the company might have debt risks. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. It's good to see that while Whitecap Resources's dividends were not covered by profits, at least they are affordable from a cash perspective. Whitecap Resources paid out a conservative 46% of its free cash flow as dividends last year. In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. A payout ratio above 100% is definitely an item of concern, unless there are some other circumstances that would justify it. Whitecap Resources paid out 652% of its profit as dividends, over the trailing twelve month period. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. ![]() If a company is paying more than it earns, the dividend might have to be cut. TSX:WCP Historical Dividend Yield, July 10th 2019 Payout ratiosĬompanies (usually) pay dividends out of their earnings.
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