CALGARY — Mid-sized Alberta oil and gas producers say their share prices have fallen so low that investors are starting to worry their rising dividend yields are becoming unsustainable.
CEO Grant Fagerheim of Whitecap Resources Inc. says the irony is that his Calgary-based company has no intention of reducing its monthly payouts to shareholders, which it has hiked three times in the past three years, and is instead looking at another increase this year.
A company’s dividend yield is determined by comparing its regular payouts per share with its current share price — when the price goes down, the yield goes up.
Fagerheim says nothing else has changed for his company but Whitecap’s share price has fallen by almost 30 per cent in the past three months — a situation he blames on worries about regulatory uncertainty and pipeline delays in Canada — driving its yield from about six per cent to eight per cent from its more typical four to six per cent.
CEO Tony Marino of Vermilion Energy Inc. says he is seeing the same investor worries as his company’s share price fell by 16 per cent over the past three months, boosting its yield to almost 10 per cent from about eight per cent, although there is no interest in cutting dividends.
Ian Dundas of Enerplus Corp. says his company could “easily afford” to increase its dividend but the low value of its shares — down 20 per cent in the past three months — makes buying them back and cancelling them a compelling alternative use for the company’s free cash flow.
“I think there is a disconnect (in the market),” said Fagerheim. “There is no risk that we’ll be decreasing our dividend. If anything, we’ll be increasing it on a go-forward basis.”
The three CEOs appeared on a panel Wednesday at the TD Securities Calgary Energy Conference.