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BP Prudhoe Bay Royalty Trust Message Board

valueprofessor 3 posts  |  Last Activity: Jun 20, 2014 10:28 AM Member since: May 18, 2004
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    Sustainability of dividends

    by valueprofessor Jun 2, 2014 2:06 PM
    valueprofessor valueprofessor Jun 20, 2014 10:28 AM Flag

    harv_mil. Thanks for even remembering - I used to frequent this board through 2005. Then I went to work somewhere I was not allowed to post. I would like to see some posts from some of those others you mentioned as well.

    Sentiment: Sell

  • valueprofessor by valueprofessor Jun 2, 2014 2:06 PM Flag

    I have not seen much mention on here of late of the coming "dividend cliff". Unless oil prices begin rising sharply after 2017, the dividend will be falling rapidly. I estimate that oil prices will need to rise about $7 per year after 2017 to offset the increased chargeable costs that are in the prospectus. By 2022, I estimate that oil will need to be over $140 per barrel for BPT to pay its current dividend. By comparison, oil futures out in that timeframe are around $82 per barrel - so oil has to be over 70% higher than the current futures price for the dividend to be sustained at current levels. Has nothing to do with proven reserves being underestimated or whatnot - it is not about geology but about the prospectus. Anyone who is wildly bullish on oil out in the distant future would be better off just buying the $82 oil futures.

    Sentiment: Sell

  • valueprofessor valueprofessor Apr 29, 2014 10:04 AM Flag

    Assume a stock with a price of $100 (assume it has been that for the past two quarters) and pays $3 per quarter.

    Close Adjusted Close
    Now $100.00 $100.00
    1 Qtr Ago $100.00 $97.00
    2 Qtrs Ago $100.00 $94.09

    How did I come up with $94.09 instead of $94.00 as simple arithmetic would? Each dividend was 3% of the closing price. The adjusted close at each period was then adjusted by 0.97 (1 minus quarter’s dividend yield). Since we have two periods like that, we have 0.97 x 0.97 = 0.9409. The 0.9409 is multiplied by the closing price to come up with the adjusted closing price. Since doing a chain of these will never result in a negative number, your adjusted close will never go below zero.

    To check this, download the data from Yahoo into a spreadsheet. Take the ratio of the closing price to the adjusted closing price. Between dividends, that number is basically the same every day even as the difference changes as the price moves around.

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