CANEXUS CORP 6.5 PCT DEBS T.CUS.DB.D

RE:RE:RE:RE:RE:RE:Newcomer to CUS

[pm1231]

"I agree that there is no way that they can continue to pay an 11 % dividend  ( at this price ) and will more than likely have to cut it"....

Consider for a moment - 

a) If they slash the dividend by 50% - and the price falls by 50% - doesn't the yield stay the same?

b) Assume they slash the dividend by 50% - how do they redploy the capital to generate a better return?  Pay down debt (at the expense of a rather large drop in market cap)?  Buy back shares?

I will say it again per my previous post - the yield is not a measure of sustainability. FUTURE CASHFLOW idetremines the payout ratio and is the primary determinant of dividend sustainability.  Here is what you need to look out for at the end of the week to determine if the dividend will be cut:

1) If there is a risk NATO will be underutilized for 2014 (they are not on track for lining up customers for NATO beyond MEG/Cenovus), or that unit trains per week will be below guidance - then that will affect future cashflow - which may justify a dividend cut.

2) If there is a further delay in ramp up of NATO - then future cashflows will be pushed out to later periods - which may justify a dividend cut.

3) If NATO costs are even higher than the 40% surprize, that will affect NPV/future cashflows and hence increase the likelihood of a dividend cut. 

4) If management is forecasting weakness in caustic soda prices or sodium chlorate - that may affect future cashflows and hence - warrant a dividend cut.

My point being - there are risks to the dividend - but they have nothing to do with current yield.  If the above are all on track or prices are forecast to remain stable - it's VERY likely the dividend will be sustained and the price will appreciate accordingly.     This is what you need to look out for.