Ecopetrol to Pay Highest Dividend in History, Is Stock Growth Affected?

The need to cover the $14.1 billion budget shortfall left by the gasoline subsidy will benefit Ecopetrol’s minority owners.

Yesterday, the extraordinary meeting of shareholders of the oil company approved the release of part of the occasional reserve equivalent to 6.9 billion dollars, which will be distributed among the holders of securities: the Nation – which holds a stake of 88.49%—and the 250,000 minority.

In this way, all Ecopetrol shareholders will receive an extraordinary dividend of $168 per share, in addition to the $280 which were approved at the ordinary meeting last March and which were distributed on April 21.

A) Yes, the Nation will get $6.1 trillion, while minorities will get $795,000 million. The latter will receive payment on June 30.

In all, this group of investors will receive a dividend of $448 this year, the highest in history, exceeding the $300 paid for profits reported by the oil company in 2011 and the $314, which corresponded to 2018, the highest to date.

It should be noted that this occasional reserve was constituted during the meeting of March 30, in order to support the financial sustainability and flexibility of the company in the development of its growth strategy.

“These reserves amount to $8.89 trillion to date, with resources that were generated from earnings for the years 2019, 2020 and 2021, which were not distributed as a dividend to shareholders” , Ecopetrol said at yesterday’s meeting.

Closing a tax loophole

The plan agreed between the Ministry of Finance and Ecopetrol to cover the shortfall by March 2022 of the Fuel Price Stabilization Fund (FEPC) – which occurred because local tariffs deviate from high international benchmark prices – includes contributions from the Nation for 8,000 billion dollars, in 7.3 trillion dollars in cash and 675,400 million dollars in dividends already decreed on the 2021 results of the oil company.

This budget discrepancy is expected to be resolved no later than August this year; however, in the 2022 Medium Term Fiscal Framework (MFMP), increases were also established in regular gasoline and CMPA prices until deficits in each are offset in August 2023 and June 2024, respectively.

Caution

According to an analysis by Davivienda Corredores, although this dividend is attractive in terms of materializing the profitability generated by the increase in oil prices, the high distribution of profits would limit the growth of equity and the reinvestment of resources in a company. this requires increasing its reserves and carrying out the transformations required by the energy transition.

“It is important to emphasize that with the current situation, and integrating an average price per barrel of Brent for 2022 at $104, the company’s earnings in 2022 are expected to reach $31.4 billion,” the report said.

Therefore, the researchers consider that if the government’s projected dividend of $661 per share materializes, the dividend payout would be 87%, exceeding its historical levels and the company’s payout policy, which contemplates a payout between 40% and 60%.

So, while they said they understand that this high distribution is framed by the fiscal need derived from the deficit generated by the FEPC, they warned that it will be very important to monitor what happens with it, because as long as the l price gap is not closed, it is likely that company resources will continue to be used to pay for that differential.

“In any case, it should be noted that Ecopetrol stands out compared to other public companies that provide this same service in the region, such as Pemex or Petrobras, because unlike its peers, it has the ability to transfer this to public finance. . “, said the researchers.

Thus, Juan Pablo Espinosa, director of economic research of Bancolombia, estimated that it will be the next government that will have to give continuity to the package of actions that will make it possible to solve the red balance of the FEPC, Therefore, the future of the fuel subsidy funding regime in Colombia will depend on this administration.