Dividend Policy

Issue

            The shares in Pengrowth Energy Corp. were down almost six per cent Friday after the oil and gas producer announced that it is slashing its monthly dividend by 43 per cent starting next month.

The Calgary-based company said it was making the move to control their operations and minimize their productions due to weakness in both spot and forward commodity prices and the economy is not stable.

As a result, Pengrowth's monthly dividend will fall to four cents per share beginning with the August 15 payment.

Relevance

In order to Pengrowth Energy Corp. to achieve the growth, management proposed a strategy relying on Pengrowth Energy Corp. is slashing its monthly dividend by 43 per cent starting next month, as crude prices have fallen by 14 per cent this year.

 

In addition, a $200-million pro forma capital expenditure reduction that coincided with the $1.9-billion purchase of NAL Energy Corp. announced March 23.

The reduction of the dividend, in conjunction with the capital expenditure reduction and company ongoing hedging programs, it should enhance the company financial flexibility.

Analysis

Pengrowth is a pretty mediocre producer with pretty mediocre assets to start with and they've got too many of them. They have got so much on their operations that I do not think they have the capacity to operate all of them efficiently.

There are several advantages maintaining dividend policies are:

1. žThe dividend payout will provide a very strong signal to investors of true financial strength and of the credibility of earnings reports. 
2. A high dividend could attract investors to buy a certain company’s shares. 
3. The dividend policy could imply stock price in the future.

The company was not paying such a high dividend; they can have plenty of capital to start with, and plenty of opportunities to operate that at a better return.

Conclusion

1- The company needs to focus on the dividend payment to maintain their shareholders. Based on the advantages that the company can get with maintaining their payment of dividend which are;

• The dividend payout will provide a very strong signal to investors of true financial strength and of the credibility of earnings reports. 

• A high dividend could attract investors to buy a certain company’s shares.

2- Some analysts do not agree with the purchasing of NAL Energy Corp. which are cost $1.9-billion. The cost is too high for Pengrowth because

• —Pengrowth is a pretty mediocre producer with pretty mediocre assets to start with and they have got too many of assets.

• —  Pengrowth did not have the capacity to operate all of them efficiently.
  
  
  
  
  
  This is summary for my point of view..Treasurer of Ma'ruf Club International Islamic University Malaysia 2011/2012