Idle cash offers instant liquidity, but it doesn't generate or provide a return. However, some people with cash reserves and a low risk tolerance invest in guaranteed investment certificates (GICs). GICs allow you to earn interest on your money within a specified period and return the principal upon maturity.
GICs offer stability, but the downsides are limited returns and the holding period. Dividend-paying stocks are riskier, although the financial gains are much higher over a longer investment period. In addition, you get regular cash flows from dividends, depending on the payment frequency.
High Dividend Stocks
One of the best Canadian dividend stocks that I would choose over GICs any day is Whitecap Resources (TSX:WCP). The dividend yield is higher than the best GIC rate available (between 4.7% and 4.8% for one year), with no periodic interest payments. In addition to the juicy 7% dividend yield, the energy stock pays monthly dividends.
At the time of writing, WCP is trading at $10.49 per share (+24.1%) and is outperforming the TSX (+13.9%) year-to-date. The $6.3 billion oil and liquids-weighted growth company has a business growth plan to generate $4 billion in free cash flow by 2029.
Growth of organic production
Whitecap has two operating divisions: the Eastern division, which covers central Alberta, and the Western division, which includes the Kaybob, Smoky and Peace River Arc regions. The five-year plan (2025-2029) includes a $6 billion capital investment that is projected to produce 215,000 barrels of oil equivalent per day (boe/d) in year five.
By the end of the first quarter of 2024, total production will be 169,500 barrels of oil equivalent per day. In addition to the $4 billion in free cash flow, the goal is to achieve $3 billion in shareholder returns within the period and $1 billion in debt repayment.
Management expects free cash flow to generate strong returns and significant liquidity, which will translate into financial flexibility. Whitecap will then be able to meet its financial priorities, such as maintaining a base dividend ($0.73 per share per year) or $2.2 billion ($3.65 per share) over the next five years. Technological advances should reduce operating costs by 5% or $250 million.
Financial highlights
In the second quarter of 2024, total revenue and net income increased 12.7% and 28.3% to $905.4 million and $244.5 million, respectively, compared to the second quarter of 2023. Free funds flow increased 11.4% year-over-year to $222.6 million, while average production volumes increased 20% to 177,314 boe/d.
Average production volumes so far this year have reached 173,487 barrels of oil equivalent per day, up 15% from a year ago. Whitecap faces highly competitive exploration and production activities in the Western Canadian Sedimentary Basin.
Other business challenges and risks include finding and developing oil and gas reserves at economic costs and fluctuations in commodity prices. Nevertheless, dividends declared in the six months ended June 30, 2024 increased by 19.7% to $218.3 million compared to last year.
Income advantage
GICs are safe because the initial principal or deposit is returned in full plus interest. However, a major dividend payer like Whitecap Resources still has the advantage of income. It also earns in two ways: through dividends and price appreciation. The energy stock has rewarded investors with an overall return of 116.6% over three years, a compound annual growth rate (CAGR) of 29.3%.