Low oil price no boon for Sasol investors

Big smiles over lower petrol prices these past few months turned upside down this week as South Africa's petrochemicals group Sasol announced it could cut its dividends.

A large proportion of South Africans are invested in Sasol - more than 140 pension funds hold shares in the company, plus most banks, investment and insurance companies.

Fund manager David Shapiro, like most, is personally invested in Sasol. "I have one foot in the hot water and one in the cold water," he said.

"No one could have predicted this massive fall in oil prices. I am still shocked."

Sasol was good to shareholders over the past five years, when it showed dividend growth of 20.39%.

But, with oil prices hitting a six-year low, Sasol - which generates 40% of its revenue directly from oil and the rest from other chemicals - announced a change in its dividend policy this week from "progressive" to "neutral".

This means it will no longer be committed to hiking dividends each year - a blow to the grannies, widows and orphans who relied on this income.

The R280-billion company last cut its dividend when the global recession hit in 2009.

Markets were clearly unhappy about the announcement as Sasol's share price dropped from about R476 a share on Wednesday morning to R446 later that day when investors got wind of possible plans to cut dividends. The share was steady at R446 on Friday.

"The markets were pissed off ... If you have a progressive dividend policy, it means people buying that share have been promised a certain payout," said one of the top industry analysts.

Sasol was expected to pay its shareholders R21.50 a share in dividends this year but with oil prices hovering at about $60 a barrel, shareholders should expect a lot less.

"Sasol did pretty well for the first half of the year up to December when the oil prices were still at around $90 a barrel. So I suspect the dividend will be about R15. I just think their timing was a bit off; they could have left it until September. The company still has a lot of cash," the analyst said.

"We will have to wait and see what the oil price does and what impact that will have on [Sasol's] profitability in the long run. I won't hold my breath," said Shapiro.

Sasol spokesman Alex Anderson pointed out that a final decision to cut dividends had not been taken by the board.

The company said in a statement that the directors had approved a change in the company's dividend policy at a special meeting. But the actual dividend will be announced on March 9 alongside its results for the past year.

However, Sasol is also targeting cost savings across the group of at least R4-billion a year.

The move to change Sasol's dividend policy from progressive to neutral is probably the smart move in the longer run, seeing that the company generates such a large chunk of its revenues from oil.

"BHP Billiton has a progressive dividend policy, but BHP Billiton is essentially a lot more diversified in the commodities it sells," said the analyst.