Mid-sized Alberta oil and gas producers say their share prices have fallen so low that investors are starting to worry their rising dividend yields are becoming unsustainable.
The irony is that his Calgary-based company has no intention of reducing its monthly payouts to shareholders, which it has hiked three times in the past three years, said CEO Grant Fagerheim of Whitecap Resources Inc.
“I think there is a disconnect (in the market),” said Fagerheim on Wednesday after taking part in a panel discussion at the TD Securities Calgary Energy Conference.
“There is no risk that we’ll be decreasing our dividend. If anything, we’ll be increasing it on a go-forward basis.”
A company’s dividend yield is determined by comparing its regular payouts per share with its current share price – when the price goes down, the yield goes up.
Nothing else has changed for the company but Whitecap’s share price has fallen along with many other oil and gas producers, said Fagerheim, a situation he blamed on worries about regulatory uncertainty and pipeline delays in Canada.
Whitecap shares are off by almost 30 per cent in the past three months and its dividend yield has jumped from about six per cent to eight per cent as a result, much higher than its more typical four to six per cent.
There’s little reason for concern about cuts in payouts for many of the dividend-paying intermediate companies he covers, said Adam Gill, an energy analyst for Eight Capital Research.
“At US$50 (per barrel), maybe some of the dividends are a little out of the sustainability range but at a US$60 oil price like we’re seeing today, a lot of these companies are safe and offering a pretty good yield,” he said.
CEO Tony Marino of Vermilion Energy Inc. says he is seeing similar investor worries as his company’s share price fell by 16 per cent over the past three months, boosting its yield to almost 10 per cent from about eight per cent.
He said a dividend cut is “not something we’re even entertaining.”
Enerplus Corp. could “easily afford” to increase its dividend but the low value of its shares – down 20 per cent in the past three months – makes buying them back and cancelling them a compelling alternative use for the company’s free cash flow, said CEO Ian Dundas.
The company reported buying back $35-million of its stock in the first five months of the year. It has regulatory approval to buy back an estimated $190-million worth in the 12 months ended next March.
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