RE:BNE - Today's downturn... I'm on the coaster rideGreat post Snow.
As Joseph has stated, I was also disappointed that there was no gesture towards a dividend raise, or at least laying out a scheme to approach such. The dividend is $4mm annually against ~$105mm FFO (at mid 50's oil), and $55mm capex. That's less than a 4% payout ratio on FFO, but because the stock has gotten so creamed, its almost a 3% yield at this point. Doubling the rate to $8mm over the next 12 months will not make or break these guys..., and they will still have most of the flow going towards debt reduction. But for me, a shareholder, the move from $4mm to $8mm is the difference of 6% or a 3% yield at these levels. So it really is material to me.
I think they have room to do both, vs focusing strictly on one or the other.
For the prior four years up until Nov 2018, all excess cash was directed towards the equity, and debt remained mostly flat. Instead of paying 10 cents a month after buying the Enerplus assets on the credit line, maybe they should have moved it to 7 or 5 cents, and done a mix to both debt and equity.
Likewise, instead of a more measured reduction in the dividend after the diff blowout last NOV, the company panicked and slashed the dividend almost to zero, with nearly all excess cash now going to debt.
Why not stratify it a bit. Do a mix to both debt and equity, vs this polarized approach they seem to be using. The company prides itself in being a dividend entity, why not provide a tranched payout scheme:
for example, until a stated debt target is reached (and tell the market what that target is..)
- If oil is below $55 WTI, dividend remains at 1 or 2 cents
- If oil is between 55-60, dividend moves to 3-5 cents
- if oil is above 60, dividend moves to 7 cents
- if oil is above 65, it moves to 10 cents
-... and so on.
Communicate with the shareholders.
And after debt reduction is reached, they have the flexibility to run a 50% payout rate, as they are a bit more than half of FFO for capex at $52 WTI. How many other companies can claim almost half of FFO is discretionary at $52 WTI? Very few. At higher prices, that level increases. The company used to payout close to 60% in prior years.