GREY:TBTEF - Post by User
Post by
ocean112on Dec 11, 2014 12:05am
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Post# 23218080
Why I Think They Won't Cut The Dividend
Why I Think They Won't Cut The DividendI'll say this much, when management owns almost 4% of this company (fully diluted), or roughly 14 million shares, they will only cut the dividend as a last resort. Think about it. Saunders alone owns about 5.8 million shares, which gives him $92,800 a MONTH in dividend income!!!! With his dividend income qualifying as "eligible" per tax rules, his tax rate after the dividend tax credit is next to nothing (say 10%). I highly doubt he lives off his salary and bonus at Twin Butte.
Do you think he is going to volunteer his tax advantaged $46,400 a month to cut the dividend by 50% if he doesn't have to? That is the difference between management and panicky shareholders. Management doesn't panic, shareholders do.
That said, I love the fact that management has such a big stake because whatever they decide, it will be to add shareholder value so if they do cut the dividend for a buyback, etc, they have the most skin in the game to lose or gain. To quantify it, whatever Saunders decides has to be worth $46,400 to $92,800 a month out of his pocket to do it (assuming a 50% or elimination of dividend). That raises the bar quite high against a dividend cut (why risk guaranteed income for uncertain capital gains in a finicky irrational market).
Drilling makes no sense. Why drill in a low oil environment with limited inventory? They only need to drill enough to keep declines in check and position themselves for a price recovery - no more, no less. A share buyback is a good idea, but again, at the cost of taking Saunders monthly tax advantaged income OUT of his pocket??
Pay down debt? Why? Their D/CF will still be 2.5 ish - 10x better than most other juniors and intermediates. Saunders likes when the stock drops because he always seems to buy more shares on the cheap (so he has no incentive for it to go up anytime soon).
At the end of the day, the market will decide what they decide. I'm pretty confident Saunders & Co absolutely know they are running a tight ship with a crazy unjustified yield and won't jump because panicky shareholders can't take the heat.