Cameco Corp. Stock: A Silver Lining in Dividend and Output Cuts?

Here is how Cameco Corp.’s (TSX:CCO)(NYSE:CCJ) dividend and output cuts could brighten the outlook for this sector.

| More on:
The Motley Fool

Cameco Corp. (TSX:CCO)(NYSE:CCJ) stock has gained ~11% since the company announced what many income investors hate to see. On November 9, the world’s largest uranium producer said it was cutting its dividend payout by 80% and suspending operations from its top production facilities amid a continued slump in demand.

Cameco had previously never missed a dividend payment since 1991. A dividend cut from a company is a worst nightmare for income investors, who were hoping that company would be able to avoid this outcome. An 80% cut in Cameco’s dividend payout means investors will now get a $0.08-a-share payout, which is down from its $0.40 yearly payment.

I wrote on November 1 that it will be very tough for Cameco to maintain its generous dividend payout policy at a time when there is no meaningful recovery in sight for uranium.

Trading around US$20 per pound, uranium’s 12-year slump seems to be extending and is proving many bullish forecasters wrong. In this weak operating environment, Cameco is struggling to preserve cash and is cutting its costs wherever possible.

Dividend and production cuts come after very disappointing third-quarter earnings. Revenues in the quarter tumbled 27% to $486 million from a year ago, pushing the company into a huge loss of $124 million from a $142 million profit a year ago.

Silver lining?

Amid this barrage of bad news, however, there is a silver lining. Cameco’s supply cuts are forecast to remove a large part of excess uranium supply from the world’s market, giving contrarian investors a good reason to cheer up.

“With the continued state of oversupply in the uranium market and no expectation of change on the immediate horizon, it does not make economic sense for us to continue producing at McArthur River and Key Lake when we are holding a large inventory, or paying dividends out of proportion with our earnings,” Tim Gitzel, Cameco’s chief executive, said in a statement.

According to an estimate by TD Securities, Cameco’s mine closures are likely to reduce 2018 uranium mine supply by approximately 15 million pounds.

Cameco’s decision also had a positive impact on the uranium sector as a whole, with Denison Mines Corp. (TSX:DML) climbing more than 32% in five trading sessions.

Should you buy Cameco now?

There is no doubt that Cameco has removed a big drag on its stocks price by cutting its dividends and helping the industry overcome the supply glut. These measures will help the company preserve cash and cut its production costs.

A long-term and sustained recovery also depends on the actions of other producers. If you are interested in buying Cameco, you are probably better off to wait and see how other producers react. If other suppliers do not contain their production, then we are unlikely to see a long-term recovery in uranium prices.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Haris Anwar has no position in any stocks mentioned.

More on Metals and Mining Stocks

construction workers talk on the job site
Metals and Mining Stocks

2 No-Brainer Mining Stocks to Buy With $200 Right Now

You can buy these top Canadian mining stocks with just a $200 investment right now to start your long-term wealth…

Read more »

Concept of multiple streams of income
Stocks for Beginners

Lock Up This 9.2% Dividend Yield From a Top Royalty Stock

Royalty stocks have a strong advantage when it comes to creating passive income for investors. But this one has the…

Read more »

Safety helmets and gloves hang from a rack on a mining site.
Metals and Mining Stocks

Is First Quantum Minerals Stock a Good Buy Right Now?

First Quantum is a TSX stock that trades 61% below all-time highs. However, the mining stock still trades at a…

Read more »

nugget gold
Metals and Mining Stocks

The Best Gold Stock to Invest $1,000 in Right Now

Here are two of the best Canadian gold stocks that can yield some eye-popping returns in the long run.

Read more »

nugget gold
Stocks for Beginners

The Ultimate Mining Stock to Buy With $1,000 Right Now

This mining stock just saw a drop, but don't let that keep you from diving in. This miner is due…

Read more »

A plant grows from coins.
Metals and Mining Stocks

Canadian Mining Stocks: Buy, Sell, or Hold?

Explore 2025’s top Canadian mining stocks – gold, uranium, and base metals offer big potential in a dynamic, commodity-driven market.

Read more »

farmer holds box of leafy greens
Metals and Mining Stocks

3 Reasons to Buy Nutrien Stock Like There’s No Tomorrow

Nutrien stock has lost 34% of its value just this year alone and looks incredibly cheap today. Yet, secular trends…

Read more »

Canada national flag waving in wind on clear day
Tech Stocks

Trump Trade: Canadian Stocks to Watch

With Trump returning to the presidency, there are some sectors that could boom in Canada, and others to watch. But…

Read more »