Beach Energy Ltd (ASX: BPT) held its annual general meeting this week, and shareholders may have cause for concern over the company's future direction if they are hoping it will increase or maintain its dividend.
The company's shares have performed pretty well over the past 12 months, delivering a total shareholder return of 13.8%, while over a three and five-year period, the results are not so good, with a negative return of 6% and 2.9%, respectively.
The company has had some operational issues with its Waitsia Gas Plant in Western Australia, which is to come online in the coming days, running late and well over budget.
Chair Ryan Stokes, in his address to the AGM, stated that the board was aware of the need to reward shareholders, but noted that there was a balancing act between investing for growth and achieving capital returns.
As he said:
We want to invest to drive growth with a focus on maximising shareholder returns through disciplined capital allocation. This growth will be both organic and potentially inorganic, where it is accretive tio shareholder value. We want to growth through accretive opportunities … and we will be disciplined in our approach. As a result we will review the capital management policy ion relation to dividends to ensure it enables growth and maximises total shareholder return.
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Dividend on the chopping block
The analysts at Jarden believe this fresh look at the dividend payout means a likely reduction.
As they said in a note to clients:
We expect the review to lead to a reduction in dividend payout as it allocates more capital to fund growth. We estimate Beach has about $1 billion to invest in incremental growth over the next three years, on the assumption Beach halves its current 40-50% dividend payout, resulting in dividends per share averaging 4 cents per share through the forecast period.
The Jarden analysts said while the pivot to growth was "not surprising, in our view, (given the shrinking proved and probable reserves base and 8.7-year reserve life), it does add risk and uncertainty to the Beach value proposition''.
They went on to say:
With limited organic oil and gas growth opportunities available, inorganic growth and a possible move into gas storage and power generation may play a key role in Beach's future. Our underweight rating and $0.95 12-month target price are maintained.
Given that Beach's shares closed Wednesday's trade at $1.31 per share, factoring in dividends, Jarden is expecting a total shareholder return over the next year of negative 24.8%.
