RE:RE:RE:RE:The Dividend will be cut Guaranteed !! Capharnaum wrote: RayDonovan78 wrote: I respectfully disagree. I have not crunched the #'s but they are not going to pay a 7-8% dividend for too long with higher interest rates on debt.
In regulated utilities, most of the interest costs get passed on to customers. There is a timing difference before it's built in rates, so it's not immediate, but long term the interest costs don't affect significantly the cashflow generation on the regulated utilities side (which is 85% of their business). Hence, the interest rates on the debt for regulated utilities have no material effect on the dividend policy.
The main reason for cutting the dividend for a regulated utility would be to raise additionnal capital for new investments. That said, it almost never happens because the rate of return on capital spent for a regulated utility needs to match the cost of capital (so debt and equity), so it's almost always favorable to keep the dividend flowing and to raise additional equity.
I appreciate this insightful commentary as I am sure others do. In my view the danger here, in addition to Banskota-led management, will be governments and Utility boards. They will seek to protect the public from inflation and will mount opposition to rate hikes. One only has to look at Emera and what it's facing whilst dealing with the moronic Nova Scotia government. I'm not saying that it is a given with Algonquin, but it is a risk going forward.
One thing preventing further carnage in the SP is the outsized dividend, which the market is saying could be in danger. If cut, the SP drops even lower. If a boat-load of new equity is issued, as Carpharnaum suggests, then SP drops further and the dividend must be paid on all the dilutive shares in addition to the existing shares.
I think that there will be some sort of hybrid approach to the problem that Banskota has created for shareholders: (1) Combination of new equity followed by a dividend cut and DRIP cancellation; (2) Accelerated requests for rate reviews where justified; (3) Accelerated "asset recycling" (selling good to pay for bad); Drop the Kentucky Smoke Belch acquisition (wishfull thinking on my part).
We've seen all of this before with the AltaGas implosion. Algonquin needs to rip the band-aid off quickly, not slowly like it is doing.
The next step, which one us shareholders are in complete control of, is to punish Banskota and the BoD at AGM time.