Why a dividend cut may be the best option for Manitoba Telecom.
Another analyst is calling for a dividend cut at Manitoba Telecom Services Inc. Following the companys weaker-than-expected fourth-quarter results, and a pension solvency update showing its deficit rose to $395-million in 2014 from $205-million, TD Securities is forecasting a dividend reduction when Q1 2015 results are released in May. Analyst Vince Valentini expects Manitoba Telecom will cut its annual payout to $1 from $1.70 when its new chief executive, Jay Forbes, presents his strategic plan in Q2. We believe that the outlook for MBT shares could improve significantly subsequent to the likely short-term reaction to a cut in dividend, Mr. Valentini told clients. The analyst noted that the stocks 6.8% yield implies that shareholders are not fully paying for the current dividend. He also believes that Mr. Forbes sees opportunities to improve the companys performance by reinvesting some of the cash currently being used to fund the dividend. Specifically, Mr. Valentini suggested more investment in fibre and data centres could produce better revenue growth, which may improve the companys negotiating leverage with potential buyers of both its Allstream division and its core Manitoba operation. These strategic buyers do not care about the dividend; as such, we believe that a cut could be the best path to long-term shareholder value creation, he said. |