Q2 Earnings Transcript Clearly Supports Dividend. Read Here. There is no reason or even a hint the distriibution needs to be adjusted. See below from Q2.
Earnings Growth, Falling Rates, No Changes Needed.
Management has purposely been holding back on revealing their plans to not tell the competition what we are doing, which will end up surprising the market over time, and support the dividend.
Q: Got it. Okay. And Grier, while I have you the quick numbers question. You guys used to disclose and adjust the operating cash flow figure, which backs up some of the noise in cash flow. Maybe share some of your views internally when you look at free cash flow, what do you look at and what's the current annualized run rate, free cash flow in the business today and payout ratio against your current dividends?
A: Yes, like for sure, Gary, I mean, when you look at the EBITDA and you look at our growth and maintenance capital, the interest, the dividend, you can see, it's relatively neutral right now. And as we continue to talk about our plans for the business, whether we're talking propane or Certarus, I think it will become clearer to the market what our plan is. But we see growth. We see our ability to improve the cash flow picture and make it more of a positive scenario, which is how we get our head around the fact that these are all supportable. We've got in our plans, we see sufficient cash flows to support the growth of the business through CapEx, support our delevering plan, as I said in my remarks, it's super important for us to get to a more sensible leverage target by the end of 2026 and obviously support the dividend. So we see the cash flow picture that supports that, but as I say, like as we continue to unveil our plans for the future and our confidence in growth for the businesses, I think it will become clearer to the market.
Q: And then last question, I just wanted to revisit the capital allocation question. We've talked about this in the past, but what are your current thoughts on how you're weighing the merits of maintaining your current capital allocation strategy as opposed to an alternative like reducing the dividend to accelerate the deleveraging and sort of bring back dividend growth over time? Has anything changed in your outlook there?
A: No, nothing changed. I mean as Grier was saying, we're very comfortable with where we're at from a cash position. We've got line of sight within the business for incremental opportunities. We're able to fund the growth that we foresee in the business. I think there's opportunity to reduce the requirement for capital within the propane business and increase its contribution to the bottom line.
So our long-term vision hasn't changed in terms of our ability to reach our goals around the leverage to fund the growth of the business. And certainly, that enables us to support the dividend.
Q: I only have 1 or 2 left. The first question is back to the dividend. Why do you feel the need to continue paying one at all? I mean the stock is, I think, a 9.5% yield. And so the market doesn't seem to be paying you at all for giving them a dividend. So why not pull it and use that to buy back shares or as someone else said, accelerate the leverage reduction. I guess I'm approaching this from a different way. Some are asking whether the dividend is safe. But I'm asking whether it just makes sense to kill it entirely.
A: Yes, I mean it's a great question. I think I could say that about a number of things. When I look at the value of Certarus versus some of its competitors in -- in our some of the parts, I think it's tremendously undervalued. And the answer to that isn't to sell Certarus. It's to work within the business to get it better understood and for us to continue to stay on the path.
So what we're not doing right now with our share valuation is challenging the fundamentals of this company. Superior has, I think, stellar assets when it comes to the propane business that, frankly, have an opportunity to be optimized in a meaningful way. I think Certarus has positioned us incredibly well. And right now, our capital structure may not be getting the value that we think it deserves. But we're not under any pressure to have to change that in order to capitalize on the opportunities in the business.
So in the fullness of time, of course, you're always looking at how are you getting the right value, and is the business being seen the way that we see it. But I think over the course of the next -- the coming months, we're going to continue to focus on what we do best. That's drive the business hard, continue to generate growth. And I don't think our capital structure necessarily, certainly for our ability to support the dividend doesn't require any augmentation at this point.
Read the transcript here:
https://www.alphaspread.com/security/tsx/spb/earnings-calls/q1-2024