Suncor is no longer a dividend aristocrat — and others may follow suit
After posting a $3.5-billion net loss Wednesday and cutting its previously untouchable dividend, Suncor Energy Inc. warned more challenging times for the energy industry are ahead and predicted a prolonged recovery in oil markets.
“There’s absolutely no question that the second quarter will be far more challenging than the first quarter, both in the upstream and downstream sides of the business,” Suncor president and CEO Mark Little said on an earnings call Wednesday as the company posted a huge net loss for the first three months of the year and cut its quarterly dividend by 55 per cent to 21 cents per share.
Little said the company expects oil markets to “substantially recover” by 2022, but a period of economic uncertainty could persist thereafter and lead to “weaker commodity prices and higher volatility.”
Suncor, Canada’s largest oil producer by market capitalization, is considered among the most stable operators in the domestic energy industry thanks to its network of refineries and Petro-canada fillup stations across the country. The integration of its assets has, in past bear markets, helped it weather downturns.
This time around, Little said the firm would have been forced to cut its dividend by the end of Q2, and decided to save $1.3 billion this year with a proactive cut.
The first quarter witnessed a collapse in global oil demand as major economies including the U.S. and Canada issued quarantine orders and commuters stayed home. Oil prices plunged to record-breaking lows, reaching negative values for some expiring contracts in the second quarter.
The dividend cut drew praise from analysts.
“Building debt just to maintain a long-term track record of dividends doesn’t strike us as a pragmatic approach to capital allocation or balance-sheet management,” Raymond James analyst Chris Cox said in a Wednesday research noted, which he titled “pragmatism trumps pride.”
Until Wednesday, Suncor had been listed as a Canadian dividend aristocrat, a label for companies that have increased dividend payouts for 25 straight years, alongside the likes of Royal Bank of Canada and other oilsands giants Canadian Natural Resources Ltd. and Imperial Oil Ltd.
Following dividend cuts by Suncor, analysts believe more companies, including Canadian Natural, could follow suit. Imperial Oil left its dividend payout unchanged when it released a first-quarter net loss of $188 million last week.
Canadian Natural is scheduled to release results and host its annual shareholders meeting on Thursday.