At the company's 2Q15 conference call on 31 July Pat Yarrington stated: "We intend to cover the dividend from free cash flow at whatever the ensuing price"; "That is a firm commitment." Looking at the latest financials that can only be achieved through a combination of slashing C massive layoffs (every 3,000 employees sacked saves about $1 billion per year) and massive asset sales.
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Wall street almost certainly expecting a dividend cut whatever Yarrington says. She can afford to lose her job, we can't.
If debt is incurred to cover the dividend, how negatively does that impact the stock price? It's been 8 years since I took accounting, but it seems like adding a 10 figure liability would be a pretty big knock.
I paper traded and bought $9500 in various October puts ($60, $65) on Thursday last week and it was up 600% on Monday. Today I'm still up 500% at EOB.
Anonymous141691i'd buy ITM puts for now.
That borrowing capacity is for keeping operational expenses, Gorgon CapEx and payroll going as long as possible, and hoping for a light at the end of the tunnel. Part if that borrowing capacity will go towards dividends, but only for so long. I doubt we will be able to keep paying $1.07 divvy past the end of 2015. A bigger hit to our cash flow awaits us in 2016.
Chevron still has a lot of additional borrowing capacity before impacting the AA credit rating. A dividend cut means the CEO and CFO lose their jobs so there won't be one until the board decides to not allow additional borrowing. Watson, as Chairman of the Board, may even be able to push through new bond issuances to the point of a credit downgrade to 'A'. I don't expect a dividend cut in Q3. There will be substantially more cost-cutting (layoffs), borrowing and possibly suspended phase 4 projects before that step is taken.
With that said, management and the board won't have a choice if prices stay around current levels for more than a year or so.
Since this is all public information, and we can see the writing on the wall... What do you think about picking up some November put options ($55 range) to hedge the option being slashed?
I read what Yarrington said. I also remember what politicians say, then end up doing. You need to take these words with a bit of caution. The words uttered that day were meant for the occasion. Sure, it is Chevron's intent to make good on that commitment to honor dividends, but if it comes to sink or swim, new words will be uttered. The company is between a rock and a hard place. Any investor who follows Chevron knows this. Any savvy investor also knows that words are not always a solid promise.
Other thing to keep in mind is the cost cuts have to come from the U.S. to avoid tax impacts from repatriating cash held overseas.
She said it would be covered by free cash flow in 2017, meaning that until then it will have to be covered by borrowing money, selling assets, and cutting costs. The current dividend pays out $2 billion per quarter.
Thats exactly right. dividend commitment is absolute and sacrosanct. They better not mess with it. Or else....
Of course they can keep borrowing in addition to laying off employees and divseting assets.