Quote:
Originally Posted by username
No, had it not been for this drop in oil price, the "divvy" wouldn't have been cut. Vermilion's payout ratio is not "way above 100%", it was 103% in 2019 and they cut their capital program for 2020 to ensure the dividend would be sustainable.
It was a 20 dollar drop in oil prices, combined with a YOY 65% drop in SP, that brought this cut to the "divvy".
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This is the same answer he gave me for months. Three things:
1. I mentioned dividend payout ratio, that is dividend over net income. You are quoting a dividend over FCF ratio of some sorts. Different metrics.
2. If you are using a dividend to free cash flow metric you want it over 70%, anything less is a huge red flag and sustainability for that ratio is closer to 40%.
3. Oil is a cyclic commodity, you should expect fluctuations in FCF with more safety margin on a dividend.
You are entitled to disagree with the above, but it's been three points my friend and I have been arguing about for awhile now. The beer he owes me after today's cut will taste pretty sweet.