Is Norbord's Dividend Payout at Risk?

Is Norbord Inc.'s (NBDFF.PK) dividend at risk? That's the question being raised by CIBC World Markets in a research note released on Thursday.

Analyst Don Roberts wrote:

With its current dividend yield of 6.5%, Norbord has offered one of the best dividend yields within the Basic Materials universe for a long period of time. However, given the on-going severe correction in the U.S. housing sector, there is legitimate concern that the dividend is at risk.

He said that despite a C$35-million increase in Norbord's revolving bank line, the company's available liquidity fell from C$310-million in the first quarter of 2007 to C$279-million in the third quarter of the year. Of that available liquidity, Norbord is required to repay C$200-million on notes that come due in March of 2008, he added, leaving little room for dividend payouts.

Given its low cost position, we do not think Norbord is subject to financial distress or that it will ever completely eliminate its dividend. However, we do place a 75% probability that its dividend payout will be reduced over the next 3-6 months, thus creating some 'event risk.'

Mr. Roberts reduced his price target on the stock from C$8 to C$7, and maintained his "sector performer" recommendation.