Teck Resources: Dividend Looks Safe

Shares of Teck Resources (NYSE: TCK) have suffered a significant decline in December and are down almost 60% year-to-date. Nevertheless, the company stated that it had no plans to cut its $510 million dividend. If the company delivers on this promise, Teck Resources will remain a very attractive income play with a yield over 7%. However, is this promise realistic given current market conditions?Teck Resources has four main pillars in its business: met coal, copper, zinc and oil. Oil is yet to become a significant contributor to Teck Resources' revenue, as the company's flagship Fort Hills project, where the company has a 20% stake, is scheduled to deliver first oil in the fourth quarter of 2017. The recent downside in Teck Resources' shares is most likely connected to the weakness in oil prices, which pressures the valuation of Fort Hills. However, I'd like to point out that oil from Fort Hills won't be produced for another three years. Three years is a massive amount of time for the volatile oil market, and, in my view, no one can tell where oil prices will be in 2018. In the meantime, the drop in oil prices does not hurt Teck Resources' bottom line in any meaningful way, and it surely does not affect the company's ability to pay the dividend.This means that Teck Resources' dividend will depend on the company's results from met coal, copper and zinc. Zinc became the largest contributor to revenue in the third quarter, and it was also the biggest... Read more

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