Tuesday, September 18, 2007
SFK Cuts Its Dividend
SFK Pulp Fund announced today a cut in its dividend to 2 cents per share from the previous 5 cents. In my 2nd Quarter Recap, i mentioned that at prevailing conditions, it seemed that a distribution cut was likely, and since then things got worse: the Canadian dollar continued to rise by another 3%. The fact still remains that 90% of NBSK pulp production is in Canada and Europe, so the fall in the US dollar is affecting everyone in the industry. In the short run, these currency changes can be devastating, but in the long term I have to believe economic forces will work themselves out. A friend of mine recently told me that things like these can take years to play out- for example, the refining industry was in turmoil for almost 20 years before finally correcting with a huge cyclical upswing. I am starting to understand what he means. But, I've always been long-term focused. My barometer for change relies on looking on 3 public competitors- Tembec, Catalyst Paper, and Pope & Talbot, who control, approximately 16% of the NBSK market. These companies have been generating negative EBITDA's (Earnings Before Interest, Tax, Depreciation & Amortization) for some time now, and I can only hope that the recent fall in the US dollar will be the nail in the coffin leading to industry rationalization. But I've been too optimistic in the past, and it could be some time before economic forces play out.