Dividend Increase expected...
I am looking at the 2014 forecast for COS and the only variables that I see that directly relate to CASH FLOW FROM OPERATONS OUTLOOK are Crown Royalties, Taxes, and Purchased energy that are the variables. The average price for the first quarter was 108.50. So that is approximately 23.6 percent higher than forecast.
Royalties are based on 60% WTI price so if we multiply the royalty number payable by 1.236 it should be pretty accurate.
Energy was higher so let’s multiply it by 25% that will be close enough. 1.25 (They did not make their q1 production number so there should be some reduction in about used NOTE)
Let’s guess taxes are in line with Price increase to so multiply them by 1.236
With these calculation if figure cash flow from operations will be somewhere around 47.58 a boe or 90 cents a share cash flow for the first quarter simply again because they did not make their production number.
Any other adjustments, back taxes, amortization rate, changes in accounting policy, etc are simply finance and the actions of finance cannot be predicted….
So 90 cents versus a plan of roughly 60 cents a share for the first quarter leaves them with free cash flow 427 million, after paying a dividend of .35 cents they would still have roughly 260 million dollars in hand. Or roughly 140 million over plan or what represents a 50% increase in cash flow form the 2014 forecast.
Considering that the price of SCO has been over 115 dollars for the most of the second quarter and they likely will even be further ahead with respect to cash flow projection.
I expect will they will do something like this.
Raise the dividend to 40 cents for the first quarter creating an annualized return of 6.7 % compared to 5.8% historically and this will support a little higher share price and evaluation. It really giving 23 million dollars back to share holders of the 140 million extra they collected, and still leaves them with roughly 240 million dollars in free cash flow or 50 cents a share.
This positions them well to raise the dividend to 50 cents a share in the second quarter if the oil price stays where it is, or the Canadian dollar continues to goes down as forecast, the price of SCO increases, or the Brent WTI spread becomes less as cushing inventories are reduced do to pipelines coming on stream. Puts a little anticipation in the stock and creates interest.
It looks pretty Rosy