TSX:CUS.DB.D - Post by User
Post by
pm1231on Mar 10, 2014 3:06pm
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Post# 22304044
Why Canexus Is A Buy (At These Levels)
Why Canexus Is A Buy (At These Levels) Interesting comments on this site.
It makes me scratch my head when some talk about dividend sustainability based on a yield north of 10% .
The yield is simply a function of the stock price at any given time (notably - a few months ago - the yield was around 6%). The question of sustainability has nothing to do with the yield, and everything to do with payout ratio, resources to absorb capex and dividend payout, future cashflow, and management`s desire for a dividend track record.
On all fronts - the dividend seems sustainable.
a) The payout ratio (with capex) does exceed 100% in the near term with resource allocation focussed on NATO. With the 40% cost overrun - there would have been concern on dividend sustainability HOWEVER -
b) There was a $150 MILLION dollar liquidity injection (vis a vis the bought deal) that gives management the ability to ride out the cash strain through the NATO phase.
c) NATO expected to boost cash profile by 2015. By then payout ratio (with capex) will be less that 100% - as capex will wind down relative to 2013/2014 levels.....that payout ratio will fall into 2016 and beyond (no other major capex initiatives on the horizon after NATO that will strain cash). The Nebraska ruling that deems unconstitutional the ability for the governer to allow development on private land may further delay Keystone XL even in Obama administration approves. The longer the delay in Keystone XL and other major pipeline projects (ie. Northern Gateway) - the better for crude-by-rail providers like Canexus to recoup thier investment beyond capex.
d) Given the above - if management wants to maintain a dividend track record - and CAN - the case for cutting the dividend is diminished.
Like the previous poster - I am buying long at these levels....