RE:RE:RE:RE:TD Waterhouse - Torc is Sustainable at 50.00 OilOcalaman wrote: Interesting post analysis regarding DRIP and dilution. My view would be that by participating in a DRIP pogram constitutes a " good faith" act by the shareholder. Placing a trust in management is an important opinion made by DRIP participation, participation by a sophisticated investor like CPPIB should provide some level of comfort for other shareholders. Since a DRIP, by it's nature, is a recouping ,by the company, of cash that might have gone out the door and is reinvestment in the company and any decisions by the company regarding dividend payments or drip ratio's down the road will effect those shares issued under previous drip payment, therefore recouping some of the costs versus cash out the door which might be employed elsewhere.
Hopefully companies will grow production and cash flow per unit by more than the dilution effect of DRIP and at the end of the day ,while it does hold back CFPS, it will outpace the dilution. I think every oilco now is infringing on common sense metrics for investing and we have stepped from "who will do better" to " who will survive" and will return to better days and those who bet on the surviing entities will benefit because they will emerge leaner and meaner and once you have hung over the precipice you won't want to go back again.
For what it’s worth in my “opinion” Company DRIP programs should be viewed as Monthly or Quarterly Dilutive “Bought Deals”.
The true cost of the cash raised with the “Bought Deal” is the yield. The higher the Yield the higher the Dilution.
Raising cash with Equity instead of Debt is good for the Corporate Balance Sheet. It’s often not nearly as beneficial to the Retail Shareholders due to the dilution.
When the Yields were relatively low and the Commodity prices were relatively high and rising it was possible to profitably invest the money raised by the DRIP “Bought Deals”.
In the current High Yield / Very Low Commodity Price environment that is no longer possible and DRIP programs have become very dilutive.
Currently the cost of raising money with the TOG DRIP program is a bit over 9%.
I don’t understand how TD gave TOG a sustainability rating of 5 out of 5 at $50 WTI.
I agree with Fantome; it doesn’t compute! If the Commodity prices remain at the current levels for an extended period of time TOG will be forced by the circumstances to reduce the dividend.
I am not suggesting that TOG won’t be a survivor, I expect that they will be. Their survival may come at the cost of the Retail Shareholders due to the CPPIB DRIP dilution if it is not dealt with.
If the Oil Price gets a sustained recovery to $65 - $75 by year end the above won’t matter much, if not it will. Currently the outlook for the Oil Price is not encouraging but anything is possible….
As Always; Do Your Own Due Diligence; It’s Your Money !!