Understanding PG&E’s Dividend Cut

Today, Pacific Gas and Electric (PCG) is down in after-hours trading to $46 per share on the news that the Board of Directors has elected to suspend the $0.53 quarterly dividend. A PG&E press release blamed the California wildfires for the dividend cut, as California law does not shield utility companies for they damage they cause during natural disasters even if they are in compliance with the applicable health and safety laws.

Initial estimates suggest that PG&E’s liability could be in the $1.0 billion to $1.5 billion range. Presently, Pacific Gas maintains an insurance policy covering natural disaster damage up to a maximum amount of $800 million. Assuming that Pacific Gas triggers this cap, the California wildfires stand to cause $200 million to $700 in losses to shareholders. Considering that there are 515 million shares, this could be a maximum hit of $1.35 per share (with the lower end ranges causing about $0.38 per share in damages).

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