Pengrowth's Distribution Cut Was the Right Choice - Bank of Montreal

Pengrowth Energy Trust's (PGH) decision to cut its January distribution is tough on investors near term, but it was the right thing to do given the current economic climate, says Bank of Montreal analyst Gordon Tait.

Mr. Tait said in a note to clients:

We have been concerned about the sustainability of Pengrowth’s distribution level given the continued weakness in commodities. Therefore, the distribution cut is a step in the right direction. In light of the current credit and commodity price environment, we believe preserving a company’s balance sheet should be among the top operational and strategic priorities for management.

Pengrowth said Thursday after market close that it was reducing next month's distribution by 25% from C$0.22.5 per unit to C$0.17 per unit. Shares, which climbed 5% to C$9.75 on Friday, were down 5% to C$9.18 at 12:30 p.m. ET on Monday.

Mr. Tait reduced his cash distribution estimates to C$2.59 per unit from C$2.70 in 2008, and to C$2.04 from C$2.30 in 2009 and 2010. He also calculated the trust’s basic payout ratio to be 70% in 2008, 76% in 2009 and 2010. The analyst maintained his "market perform" rating and dropped his price target from C$14 to C$13.

In addition to lowering the distribution, Pengrowth also lowered its 2009 capital budget by 47% to C$215-million.

Mr. Tait noted that despite the significant reduction in the capital budget, Pengrowth's production is only expected to fall 6% next year.

Comments

[kurt walter:]

I have owned this one for years. Doesn't matter up oil, down oil. Whatever. I just continue to collect the monthly dividend.

2008 Dec 23 01:39 PM

[dynacode:]

Same thing here. I bought some at $18 ( Still 11% ), and some at $9 for 22%. Beats the 0% some other people are getting. And my feeling is that oil will be back up. Correct me if I am wrong pls.

2008 Dec 24 04:40 PM

[K. Argenta:]

I own a lot of "Blue Chip" companys in the U.S., and they are cutting their dividends, so what if the 'canroys' cut their dividend I'm still making more money than U.S. stocks,which most pay 1/4 (quarterly).

2008 Dec 26 04:36 PM