Pengrowth Energy's Shareholders Will Hate The Dividend Suspension

Introduction
In January I reviewed Pengrowth Energy (NYSE: PGH) as I was looking for assets with a low decline rate that had a good chance of surviving the current horrible situation on the oil and gas markets. Pengrowth benefited from a low decline rate, but I was unsure about the company's relatively high net debt position as Pengrowth's interest expenses were (and still are) pretty high so a combination of asset divestitures and a cash outflow reduction will be necessary to protect the company's future.

PGH data by YCharts
A dividend cut isn't entirely unexpected, and it will help the company to save cash
After having implemented a very sharp reduction in the dividend payments in 2015 (from C$0.04/month to C$0.01/quarter), Pengrowth decided to go the extra mile and has now suspended the (symbolic) dividend in its entirety. Some shareholders will be very disappointed with this move, but it really is in everybody's best interest as every million dollar that could be applied towards reducing the net debt will put the company in a better position to tackle the future.

Source: company presentation
Just to give you an idea, cancelling the dividend will reduce the cash outflow by almost $4M per quarter. Okay, $16M per year doesn't sound like a lot of money for Pengrowth, but as the total net debt is $1.4B (and roughly $800-900M by the end of this year), the dividend cut will help the company to reduce its net debt by 2% per year.... Read more

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