National-Oilwell Varco Cuts Dividend 89%
National-Oilwell Varco, Inc. (NYSE:NOV) is turning to desperate measures to save cash, which could mean lean times ahead for dividend investors.
On Monday, the company announced an 89% dividend cut. National-Oilwell Varco’s quarterly distribution will fall to $0.05 per share, versus $0.46 per share previously. (Source: “National Oilwell Varco Reduces Quarterly Dividend to $0.05 Per Share,” Business Wire, April 11, 2016.)
“We believe reducing the dividend is in the best interest of our company and our shareholders as we continue to work our way toward the bottom of this severe down cycle,” Chairman, President, and CEO Clay Williams wrote in a press release. “Substantial decreases in 2016 E&P capital plans are driving activity levels to new record lows, resulting in significantly diminished demand for equipment and services.” (Source: Ibid.)
The move is a part of National-Oilwell Varco’s broader efforts to conserve cash. The slowdown in the oil patch has resulted in a crimped demand for everything from drill ships and jack-up rigs to fracking equipment and oil field services. Management has responded through layoffs and other cost-saving measures.
The dividend cut buys extra wiggle room. According to executives, reducing the distribution will save the company about $615 million a year. With $2.1 billion in cash on hand, National-Oilwell Varco should now have ample resources to weather a downturn.
Dividend investors, though, are unlikely to see relief anytime soon. Based on updated guidance, management expects first-quarter revenue to drop 20% quarter-over-quarter and 55% versus the same period last year. Such declines are far worse than most analysts were expecting.
In other words, income investors should expect skimpy dividend payments for a long time to come.