Analysts see dividend cut coming at Teck

Donald Lindsay, president and chief executive officer of Teck Resources Ltd.

Teck Resources Ltd. held its investor day in Toronto on Tuesday. The timing was notable, as it came each day after a report surfaced that the company held merger talks with Antofagasta PLC. Teck denied any curiosity about the deal, and leader Don Lindsay barely addressed it at the meeting.

But another topic of interest did come up at the investor day: the dividend, which is paid twice yearly.

There has been speculation for months that Vancouver-based Teck could cut its $510-million payout to preserve cash amid weak coking coal prices. Teck noted at the meeting that its board would normally make a decision on the mid-year dividend payment in April. However, the choice may be delayed until May or perhaps June now. The company noted it would take market conditions into consideration when it helps make the call.

“In our opinion, Teck is suggesting that in the absence of better commodity prices, it might likely cut the dividend, but not in April,” Canaccord Genuity analyst Gary Lampard said in a note.

Other analysts agree that the dividend cut is likely. Tom Meyer at CIBC World Markets thinks the prudent move to make is cut the dividend to 40 a share annually in the current degree of 90. TD Securities analyst Greg Barnes already assumes it will likely be sliced in half to 45 a share.

“With a cut in dividend widely expected, we don\’t expect a fabric share price response when it finally happens,” Mr. Barnes said in a note.

Teck’s current dividend yield is 4.6%. That is nowhere near the highs in excess of 7% late this past year, but it is still relatively high for any growth-oriented mining company.

In addition to weak coking coal prices, Teck’s balance sheet is under some pressure over the next couple of years because of the company’s US$2.9-billion resolve for the Fort Hills oil sands project. First production is anticipated in late 2017, at which point Teck hopes oil prices will be much higher compared to what they are today.

 

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