Teekay Corporation’s Board of Directors has approved the adoption of a new dividend policy under which the company intends to distribute to its shareholders a majority of the cash flows it receives from ownership in its publicly traded subsidiaries.
Once implemented, Teekay's quarterly dividend payment will be primarily based on the cash flow contributions from the company's general partnership (GP) and limited partnership (LP) interests in its two master limited partnerships (MLPs), Teekay LNG Partners L.P. (Teekay LNG) and Teekay Offshore Partners L.P. (Teekay Offshore).
The new dividend policy is expected to take effect for the quarter immediately following the anticipated sale of the Petrojarl Knarr FPSO unit to Teekay Offshore and its contract start-up, both of which are currently scheduled to occur during Q4 2014.
"Based on the cash flow growth expected to be generated by our combined GP and LP ownership interests following the dropdown of the Knarr FPSO to Teekay Offshore, we intend to increase Teekay's annualised cash dividend to between US$ 2.20 and US$ 2.30 per share effective for the first quarter of 2015, which represents an increase of approximately 75% and 80% above our current annualised dividend of US$ 1.265 per share," commented Peter Evensen, Teekay's President and CEO.
Evensen continued: "In subsequent quarters, we intend to base our cash dividend on an initial target coverage ratio in the range of 1.15x to 1.20x. Over time, as we dropdown or sell the remaining Teekay Parent legacy operating assets, we expect to reduce our target coverage ratio.
"Our new dividend policy represents the next step in Teekay's transformation towards a pure-play general partnership structure and reflects our commitment to generate sustainable long-term value for our shareholders.
"Once implemented, the new dividend policy will enable Teekay shareholders to directly benefit from cash flow growth of our daughter subsidiaries, including our two general partnership interests, both of which are in the early stages of the 50% incentive distribution rights tier, or high-splits.
“With our existing backlog of over US$ 4.5 billion of known growth capital expenditures at Teekay Offshore and Teekay LNG, we expect that Teekay's dividend will further grow by approximately 20% per annum over the three years following the dropdown of Knarr FPSO and initial dividend increase. In addition, with the strong industry fundamentals in our offshore and gas businesses, both partnerships are actively bidding on new projects which, if successful, could provide further potential upside to Teekay's future dividends."
Adapted from press release by Katie Woodward
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