For energy stock Birchcliff Energy (TSE:BIR), it was a good day to learn a valuable lesson at an extremely high cost. A lesson, in fact, that sent Birchcliff shares down over 10% in Thursday afternoon’s trading session. The lesson in question? Cutting your dividend unexpectedly can have major consequences.
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Birchcliff cut its quarterly dividend in half and followed that up with some dark projections about its plans for capital spending and overall production in 2024. Essentially, Birchcliff expects natural gas prices to stay low for some time to come, and so, Birchcliff is pulling in its collective oars and waiting out the storm until it can come back and hit production harder in order to make more money.
The cuts aren’t especially deep, especially not when compared to the dividend cut. The dividend cut went from $0.20 per share to $0.10, while capital spending will drop from between $260 million and $280 million to between $240 million and $260 million.
An Explanation Worth Considering
Naturally, investors aren’t even sort of happy about this and delivered a vote of no confidence with their portfolios in today’s trading. But Birchcliff’s CEO and president, Chris Carlsen, offered an explanation that might clear things up. Carlsen noted that the original projections were made at a time when commodity prices were much higher. With prices on the decline, meanwhile, the original projections likewise need to come down. Still, with dividends making up the bulk of an income investor’s planning, delivering sudden, sharp cuts like that often will leave them looking for better alternatives, as we saw here.
Is Birchcliff Energy a Good Buy Now?
Turning to Wall Street, analysts have a Hold consensus rating on BIR stock based on two Buys and seven Holds assigned in the past three months, as indicated by the graphic below. After a 39.63% rally in its share price over the past year, the average BIR price target of C$7.77 per share implies 52.07% upside potential.
