Wednesday, December 17, 2008

Energy Dividends on the Chopping Block?

Oil has really come off dramatically due to the horrible economic state and outlook. This has occured very quickly as only short months ago oil was trading at $145/barrel and now it sits just above $40. At these levels one has to wonder if dividends paid by oil and gas firms are sustainable, considering they are selling their wares for dramatically less than they were as they raised these dividends.

BP (BP) and Husky Energy (HSE) both yield over 6.5% and have been consistent raisers of dividends over the past few years. The companies have pay out ratios of 42 and 35% respectively. BP's earnings per share would only have to drop back to 2004 levels to prompt them to take a serious look at cutting their dividend. Husky has been growing EPS more rapidly so their earnings would only need to drop back to 2005 levels for their pay out ratio to jump to 85%.

Many Canadian energy trusts have already taken the step of slashing their distributions. Corporations could be next.

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2 comments:

  1. I think cutting capital spending for 2009 was a very appropriate move for HSE. The one thing I think helps the company is that they have operations in upstream, midstream & downstream so that flexibility should help to buffer the volatile nature of oil prices over the short-term.

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  2. T Boone Pickens just announced that OPEC would continue cutting oil production until oil went back up to $75.

    Reminds me of a boss who once said that the firings would continue until morale improved. (yes, he actually did say this).

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