Vermilion Energy (VET-T) chops its dividend. The 23-cent monthly payout had represented a yield of 21.7 per cent as of yesterday's close. Now Vermilion will halve the monthly payout to 11.5 cents, for a still generous yield of 13.3 per cent.
The defeat would taste less bitter, presumably, had Vermilion not spent the last year insisting that the dividend was perfectly safe. It regularly reminded investors that it had been paying a dividend for 17 years and had raised it four times without cutting it once. As recently as Jan. 21, president and chief executive officer Tony Marino appeared on BNN and declared the dividend "completely economically warranted." Vermilion had just updated its cash flow forecasts a week prior, said Mr. Marino, and the company was "meaningfully overfunded ... It's actually the lowest total payout ratio that we've had since 2008." How things have changed in six weeks.
To hear Vermilion talk, it knows exactly how things have changed in six weeks, and which precise thing to blame. Its press release this morning contained a lengthy eulogy to the formerly spotless dividend record and pinned the blame squarely on the coronavirus outbreak. "As we entered 2020 ... we were confident in our ability to continue our monthly dividend at 23 cents," insisted Vermilion, "... [but the] emergence of COVID-19 was an unanticipated event ... [that] has drastically altered individual, business and government behaviour," with "decidedly negative" effects on oil demand and prices. It cannot predict how long these effects will last. All it can say with certainty is that its cash flow will no longer be enough to cover all of its planned spending, so it has decided to slash the dividend.
The dividend news naturally offset the rest of Vermilion's announcement, being its year-end financials. These too were disappointing. Fourth quarter production of 97,900 barrels of oil equivalent a day was slightly lower than analysts' predictions of 99,000 barrels a day, while cash flow of $1.38 a share fell below analysts' predictions of $1.40 a share. The company reiterated its 2020 guidance of 100,000 to 103,000 barrels a day on a budget of $450-million.
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