Rare Turkish Dividend Stock Drops Payout After Earthquake

Turkish steelmaker Erdemir won’t distribute dividends for the first time in 13 years, after deadly earthquakes in the country’s southeast led to temporary halts at one of its units.

(Bloomberg) —

Turkish steelmaker Erdemir won’t distribute dividends for the first time in 13 years, after deadly earthquakes in the country’s southeast led to temporary halts at one of its units.

Eregli Demir ve Celik Fabrikalari AS, as the company is officially known, decided not to pay cash dividends from 2022 net income of 18 billion liras ($950 million), citing a need to keep cash flow healthy in a period of investment, according to a statement after the market closed on Thursday. 

Erdemir is one of the few Turkish companies that regularly pay cash dividends, a major draw for investors looking to the stock market as a hedge against inflation, and this will be the first year since 2010 that the steelmaker hasn’t given a payout, according to data compiled by Bloomberg.

Erdemir fell 4.1% at 12:09pm in Istanbul trading on Friday, erasing this year’s gains.

The decision was a surprise, according to Cemal Demirtas, deputy general manager at Istanbul-based Ata Investment. “It shows the company’s cautious stance,” he said. Demirtas has an underperform rating on Erdemir, with a 12-month price target of 37 liras.

Erdemir’s earnings before interest, taxes, depreciation and amortization per ton, a key indicator of profitability, fell to $48 at the end of 2022, the lowest level since the first quarter of 2016, according to presentations on the company’s website.

The decision comes as companies and the government try to calculate the full impact of the twin Feb. 6 earthquakes that killed over 50,000 people in Turkey and Syria. 

Turkey’s Steel Mills Resume Work After Earthquake Stoppages

The tremors prompted a dozen steel producers in the region, including Isdemir — the region’s largest steel mill and a unit of Erdemir — to halt output. Isdemir, which reported 6.73 billion liras in full-year profit, also said it won’t distribute a dividend.

“Output loss at Isdemir plant due to the quakes was the main driver of the decision,” in addition to narrowing profitability and continuing investment expenditures, said Erdem Kayli, research director at Teb Investment in Istanbul. Kayli expects Erdemir to return to its “generous dividend policy” once debts retreat and the ability to generate cash normalizes. 

–With assistance from Taylan Bilgic.

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