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Husky Energy: The Dividend May Never Return

May 08, 2020 9:48 AM ETHusky Energy Inc. (HUSKF)8 Comments
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  • Husky Energy announced a massive 90% reduction to their dividend when releasing their first quarter results for 2020, which was not surprising given their poor historical dividend coverage.
  • Their leverage will continue increasing throughout 2020 and based upon my calculations it will likely take them at least five years to deleverage once conditions recover before increasing dividends.
  • Unless there is a large and sustained spike in oil and gas prices, they appear to only be able to sustain approximately one-third of their previous dividend even after deleveraging.
  • Whilst they can handle their debt maturities during 2020, the picture is less clear around 2022 and 2024 and thus shareholders should continue monitoring this situation.
  • Since the world is moving away from fossil fuels, their dividend may never return to any material extent and thus I believe that maintaining my neutral rating is appropriate.


When Husky Energy (OTCPK:HUSKF) released their results for the first quarter of 2020 they also announced that their dividend will be reduced by a massive 90%, which as I explained in one of my previous articles, should have come as little surprise. Whilst they still technically pay a dividend, considering their dividend yield is now sitting only slightly above 1%, it certainly has little to offer income investors. Unfortunately for their shareholders there are few reasons to believe that they will ever become a high yielding investment once again in the future.

Dividend Coverage

When assessing dividend coverage, I prefer to forgo using earnings per share and use free cash flow instead, since dividends are paid from cash and not from "earnings". The graph included below summarizes their cash flows from the last quarter and previous four years.

Husky Energy cash flowsHusky Energy notes 1

Image Source: Author.

It was analyzed and discussed in my aforementioned previous article how their inability to cover their dividend payments during 2018-2019 set a poor scene heading into this downturn and thus made them risky even if the coronavirus had not ravished the world. Based on their average free cash flow during 2017-2019 of C$190m, it indicates that once conditions normalize they could afford a dividend that is about one-third of their previous level that costs C$503m annually. Although their ability to provide any future dividend increases will depend on their requirement to deleverage and thus in turn, their cash flows going forward since it determines the extent that their leverage increases.

Upon analyzing the first quarter of 2020 their operating cash flow decreased by 32.41% year on year from C$469m to C$317m, after including the items listed beneath the graph that outrank dividend payments. Even though this is already less than ideal, the situation actually worsens after removing the impact from their working

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I am no longer active, as I am taking a hiatus from finance to pursue business ventures in other sectors.  I hope that my analysis was helpful to investors across the years, thank you.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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