Analysts see dividend cut coming at Teck

The timing of Teck Resources Ltd.’ s investor day in Toronto on Tuesday was notable, as it came a day after a report surfaced that the company held merger talks with Antofagasta PLC. Teck denied any interest in the deal, and chief executive Don Lindsay barely addressed it at the meeting, but another topic of interest did come up: the dividend, which is paid twice a year.

There has been speculation for months that Vancouver-based Teck could cut its $510-million payout to preserve cash amid weak coking coal prices. Teck noted at the meeting that its board would normally make a decision on the mid-year dividend payment in April. However, the decision may be delayed until May or even June this time around. The company noted that it would take market conditions into account when it makes the call.

“In our view, Teck is suggesting that in the absence of better commodity prices, it would likely cut the dividend, but not in April,” Canaccord Genuity analyst Gary Lampard said in a note.

Other analysts agree that a dividend cut is likely. Tom Meyer at CIBC World Markets thinks the prudent thing to do is cut the annual dividend to 40¢ a share from the current level of 90¢. TD Securities analyst Greg Barnes already assumes it will be sliced in half to 45¢.

“With a cut in dividend widely expected, we do not expect a material share price response when it finally happens,” Mr. Barnes said in a note.

Teck’s current dividend yield is 4.6%. That is nowhere near the highs of more than 7% late last year, but it is still relatively high for a growthoriented mining company.

In addition to weak coking coal prices, Teck’s balance sheet will continue to be under some pressure over the next couple of years because of the company’s US$2.9-billion commitment to the Fort Hills oil sands project. First production is expected in late 2017, at which point Teck hopes oil prices will be much higher than they are today.

Analysts don’t expect a major reaction in share price