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Teekay Corporation: New Dividend Policy Sends Shares Higher

Teekay-CorporationShares of Teekay Corporation (NYSE: TK) got a boost, shooting up 14.53% to $66.90 after the company adopted a new dividend policy and announced plans to increase dividend by 75% to 80%.

Teekay’s new strategy consists of annualized cash dividend to be increased between $2.20 and $2.30 per share, which will be effective for the first quarter of 2015. This increase represents approximately 75% to 80% of the current annualized dividend of $1.265 per share.

This move was based on cash flow growth that Teekay expects to be generated by combined LP and GP ownership interests, after the dropdown of the Knarr FPSO to Teekay Offshore. In subsequent 2015 quarters, Teekay plans to base cash dividend on an initial target coverage ratio in the range of 1.15x to 1.20x. Eventually, the target coverage ratio will be reduced but only after remaining Teekay Parent legacy operating assets are dropped down or sold.

Teekay Corporation provides gas marine transportation and crude oil services, as well services for offshore oil production, storage, and offloading for both fixed-rate and long-term contracts. Operations are divided into four specific segments to include shuttle tanker floating storage and off-take (FSO), floating, production, storage, and offloading (FPSO), liquefied gas, and conventional tanker.

In March 2011, 49% of Teekay’s interest in Teekay Offshore Operating L.P. was sold to Teekay Offshore and in November of that same year, Teekay Corporation acquired the FPSO unit, Sevan Hummingbird, from Savan Marine ASA.

The current stock increase reflects Teekay’s bold dividend strategy and policy aimed at connecting future dividend increases to cash flow growth at the company’s two MLP subsidiaries. Analysts believe this will produce a 20% a year growth in Teekay’s dividend for the foreseeable future. Growth combined with the increased stock could justify trading at $90 per share or more in the near future.

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