Wow. $TK just dropped a bomb with the dividend cut. Stock down ~60%. Underlying MLPs “pulled a $KMI” by opting to self finance.
— Charles Sizemore (@CharlesSizemore) Dec. 17 at 04:35 PM
To really illustrate how bad it is in MLP land, $TK cut its dividend by 90% and still has a relatively high yield by today's standards, 2.8%
— Charles Sizemore (@CharlesSizemore) Dec. 17 at 04:54 PM
I realize that all of $TK‘s numbers are in flux given that its income from $TOO and $TGP are getting slashed, but consider…
— Charles Sizemore (@CharlesSizemore) Dec. 17 at 08:44 PM
$TK tangible book value per share = $8.49. That means that at current prices TK is trading at a 20% discount to tangible book.
— Charles Sizemore (@CharlesSizemore) Dec. 17 at 08:46 PM
Yes, high debt, etc. But the cash flows of its underlying MLPs are stable and growing. Chance of financial distress post dividend minimal.
— Charles Sizemore (@CharlesSizemore) Dec. 17 at 08:48 PM
Bottom line, $TK should be pretty “riskless” to own at today's price.
— Charles Sizemore (@CharlesSizemore) Dec. 17 at 08:50 PM
Teekay Corp (TK) cut its dividend by 90% this week after management also slashed the distributions of Teekay Offshore (TOO) and Teekay LNG (TGP). As a general partner with incentive distribution rights, TK gets the vast majority of its cash flow from the distributions paid by its MLPs. So a cut by the MLPs means a cut for TK.
Per the company:
“Although it is painful in the short-term to have to temporarily reduce Teekay Corporation's dividend, management and our Board of Directors believe Teekay and its shareholders will achieve greater long-term value creation by focusing on enhancing the value of our ownership interests in Teekay Offshore and Teekay LNG and being in a better position to support their continued growth and distributable cash flow generation.”
Mr. Evensen added, “The underlying businesses of our two master limited partnerships remain strong, in stark contrast to the current weakness in the oil price and energy capital markets. Cash flows generated by both Teekay Offshore and Teekay LNG, which largely underpin Teekay Corporation's dividend payment, remain stable and growing, supported by large and well-diversified portfolios of fee-based contracts with blue-chip counterparties. However, Teekay Offshore and Teekay LNG require capital to fund their growth and there is currently a dislocation in the capital markets relative to the underlying stability of our MLPs' businesses. As a result, their cost of equity has increased to the point where it is currently not an economically attractive source of growth capital.”
