Change in dividend policy affects Sasol share price

In response to lower oil price.

The share price of petrochemical giant Sasol dropped just over 5% on Wednesday as investors learnt that dividends will be reduced in reaction to the lower oil price.

The share opened at R476.00 and was on the back-foot from early on. After Sasol announced changes to its dividend policy at 11:19 the price dropped as low as R446.04. Shortly after 13:00 it started recovering to end the day 5.12% lower at R448.90.

Sasol announced on January 28 its response plan to the low oil price. The price of Brent crude started sliding in July and hit a six-year low in January, but has since recovered somewhat. On Wednesday night it traded at $60.56 per barrel.

Brent crude price over the past year $:

Source: Moneyweb

Sasol’s response plan is aimed at conserving cash over the next 30 months and supplements a performance enhancement programme aimed at R4 billion in annual cost savings that was announced in 2013.

On Thursday, Sasol stated that the board and management had evaluated the group’s progressive dividend policy “which had been introduced to maintain or improve dividends in line with the company’s anticipated sustainable growth in earnings.”

It said: “The company’s dividend policy takes into consideration various factors, including overall market and economic conditions, the group’s financial position, capital investment plans as well as earnings growth.”

As the low oil price will affect earnings, the policy had to be reassessed and the board decided on a revised policy based on a cover range similar to the cover rates applied during the 2008 to 2014 financial years, namely 2.2 – 2.8 times.

“The board considers that, in the current environment, this revised dividend policy, together with the other components of the response plan, will provide sufficient flexibility for the company to manage its balance sheet”, Sasol said.

“This will also allow the group to execute its growth programme while continuing to return value to shareholders through dividend payouts.”

Sasol will be announcing its results for the first half of FY2015 as well as its interim dividend on March 9 2015.

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