Shares of Teekay Corporation TK plunged to a 52-week low of $6.65 on Dec 17, eventually closing at $7.27, following a huge dividend cut. The closing price reflected a 58.43% decline over the comparable figure on Dec 16.
What Led to the Drop?
Teekay Corp. slashed the quarterly cash dividend by a substantial 90% to 5.5 cents from 55 cents paid previously. The revised dividend will be applicable from the current quarter itself, and is scheduled to be paid in Feb 2016. The shipping company arrived at the decision following announcements by the general partners of Teekay Offshore Partners L.P. TOO and Teekay LNG Partners L.P. TGP that they plan to trim their respective quarterly cash distribution amounts. Teekay Offshore and Teekay LNG are Teekay Corp.'s master limited partnerships (MLPs).
Teekay Offshore and Teekay LNG intend to utilize a significant portion of their internally generated cash flow to fund the equity capital requirements of their profitable projects to drive growth. Furthermore, they seek to make use of the funds to reduce their debt levels so that they do not need to access the equity capital markets in the near future.
Teekay Offshore GP LLC, the general partner of Teekay Offshore intends to reduce its quarterly cash distributions to 11 cents per common unit, down 80.35%. The reduction will take effect from the current quarter distribution that is payable in February next year. Furthermore, Teekay GP LLC, the general partner of Teekay LNG intends to reduce its quarterly cash distributions to 14 cents per common unit, down 80%. This reduced distribution is also payable in Feb 2016.
MLPs differ from regular stocks in that interests in them are referred to as units and the unitholders (not shareholders) are partners in the business. Importantly, these hybrid entities bring together the tax benefits of a limited partnership with the liquidity of publicly traded securities.
Zacks Rank
Teekay Corp. presently carries a Zacks Rank #4 (Sell). Investors interested in the shipping space may consider Ship Finance International Limited SFL, which sports a Zacks Rank #1 (Strong Buy).
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