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ARC Resources: Attractive 11%+ Dividend Yield And Safe Capital Structure

Published Thu, 10 Oct 2019 07:31:33 -0400 on Seeking Alpha

With its second-quarter earnings, ARC Resources (OTCPK: AETUF) announced a reduced capital program and confirmed its previous production guidance. Besides, management reaffirmed its goal of delivering a sustainable dividend.
Yet, its dividend yield above 11% signals investors don't believe the company will reach its goals and maintain its dividend. But with its 2020 capital program, ARC Resources will become free cash flow positive, and the company can face several quarters of depressed oil and gas prices.

Image source: Anitastarzycka via Pixabay
Note: All the numbers in the article are in Canadian dollars unless otherwise noted.
Q2 results
During Q2, ARC Resources' production dropped 3.0% quarter over quarter because of temporary maintenance activities. But thanks to its capital program, the company increased its production by 6% year over year, and management confirmed its full-year production guidance in the range of 136,000-142,000 boe/d.

Source: Q2 2019 MD&A
Thanks to its hedges and its diversification to U.S. gas hubs, ARC Resources realized a gas price of C$1.74/Mcf, higher than the AECO monthly index of C$1.17/Mcf.
Still, with lower oil and gas prices compared to last year, the company's average realized price dropped 22% to C$23.04/boe.
Source: Q2 2019 MD&A
As a result, despite the year-over-year increase in production, funds from operations decreased compared to last year, from C$204.4 million to C$193... Read more