RE:RE:Two interesting points from Eric's webinar todayNo.
No intention to slam you here, but you need to consider the recent history of this company if you're trying to understand the dividend vs. debt discussion. Throughout 2020. CJ's management spent a good chunk of their time trying to fend off their bankers. At the end of 2020, Net debt to adjusted funds flow was 5.6X (CJ's normal target is 2.0) and the company spent several months having to renegotiate its credit facility every month. As part of its efforts to accommodate its bankers, the company had to hedge a significant amount of its 2021 production, which ultimately resulted in a large hedging loss as prices increased. At the end of 2020, Murray Edwards came to the rescue and helped CJ get some financial stability to keep the bankers at bay.
The near-bankruptcy experience of 2020 has given management (and many long-term shareholders) an understandable aversion to bank debt. Interest payments on that bank debt during 2021 exceeded $10M (we'll find out the exact number in a couple of weeks).
At the end of 2021, CJ's bank debt was $165M. According to their latest presentation, they plan to apply all free cash flow to bank debt until the debt is down to $100M. They will be able to hit that target by July 1st even if WTI averages $65/Bbl. At $80 they could hit that target by the end of April. At that point, they may decide to start paying a dividend immediately or pay down more debt for a couple of months. I'm good either way since I will either get my returns in cash or in a higher share price.
More importantly, if prices do drop again, they will be in a much stronger position to operate in a lower price environment and we won't see our shares plummet to $0.50 again.
ronz wrote: This was my point from the other day... before I got slammed for even suggesting it. Since there are so many other companies in this sector either raising their current dividend or otherwise promising to reinstate their dividend, those companies that don't follow through with their dividend or choose to not have one for now are putting themselves at a serious disadvantage.
Don't slam me for bringing up a valid point but this is worth the discussion....
Is Cardinal hurting themselves by not getting this dividend up and going when so much of their competition are already doing one and doing it with a heck of a lot more debt than we currently have...