- i3 Energy cuts dividend in half
- Canadian oil and gas producer responding to weaker energy prices
- Several UK oil stocks are trading on lofty dividend yields
The market was ringing the alarm bell on i3 Energy’s (I3E:AIM) dividend before today’s news of a cut with the shares trading on a yield of nearly 13%.
Following news the company cutting its dividend in half the share price has fallen 17.6% to 13.4p. This extends its year-to-date losses to more than 45%.
A double-digit yield is often a sign the market has lost confidence in the ability of a company to sustain dividend payments at the previous levels and investor scepticism has been proved right on this occasion.
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While i3 Energy, which produces oil and natural gas in Canada, has been hit by some operational issues, first quarter production was up 24% year-on-year to an average of 22,773 barrels of oil equivalent per day.
RESPONDING TO LOWER OIL & GAS PRICES
The reason behind its plans to scale back its payout and reduce capital spending is lower oil and gas prices. Planned capital expenditure of up to $31 million will deliver just 14 new wells against a previously expected total of 23.
Chief executive Mafid Shafiq said: ‘Given prevailing commodity prices and in line with our disciplined approach to capital allocation and prudent amortisation and management of the company's debt, we have revised down our 2023 capital and dividend programme, protecting the value of the assets and providing us with the flexibility to ramp up operations should commodity prices improve.’
A larger number of small and mid-cap oil and gas firms have prioritised dividends in recent years as they looked to win back investors which had been alienated by poor exploration results.
However, these dividends are at the whim of oil and gas markets because, unlike the majors BP (BP.) and Shell (SHEL) (which have themselves cut dividends in recent years), these companies do not have the same level of flexibility to pay dividends from debt.
BIG YIELDS RINGING ALARM BELLS FOR OIL STOCKS' DIVIDENDS
| Company | Forecast dividend yield (%) | Year-to-date share price performance (%) |
| Ithaca Energy | 19.3 | -20.0 |
| Diversified Energy Company | 16.2 | -25.2 |
| Genel Energy | 14.9 | -18.1 |
| i3 Energy* | 12.6 | -45.9 |
| PetroTal | 11.0 | -8.3 |
| Energean | 9.8 | -22.9 |
| Harbour Energy | 9.1 | -26.9 |
| Gulf Keystone Petroleum | 8.2 | -41.8 |
| Serica Energy | 7.9 | -25.6 |
| Source: SharePad, data to 29 June 2023 |
| *Prior to news of dividend cut |
The table shows some of the highest yielding small and medium-sized oil and gas firms according to SharePad, many of which have seen their share prices under big pressure so far in 2023. We discussed the prospects for the sector in detail in this article.
