As OPEC ended its meeting without any production cut during the weekend, they decided to meet again on Dec.17 to "take any additional decision to balance oil supply and demand and to achieve market stability". Crude oil prices have been down more than 60% since its record high in July. In October, OPEC agreed to cut production targets by 1.5 million barrels a day.
Frontline on Friday reported to slash its third-quarter dividend to 50 cents a share from $2.75 and $3.00 for the first two quarters of 2008. Tanker companies pay out dividends on the profits they earn from leasing their ships on the spot market. In June and July spot, or day rates, soared to record highs, but as oil prices began plummeting so did charter rates. The stock price of Frontline has dropped 60% YoY from $72 to $29.
Frontline, Ltd., through its subsidiaries, engages in the ownership and operation of oil tankers, including oil/bulk/ore (OBO) carriers. The company primarily transports crude oil, as well as raw materials, such as coal and iron ore.
As we discussed few months ago (at that moment, the dividend is 17.6%, right now (before slash it), the dividend is 36.4%):
"When a stock pays a dividend > 7% the dividend is not safe. By the time a stock dividend is twice the CD rate the risk to the dividend is large. I'll bet that the dividend will be cut soon."
No comments:
Post a Comment