I’ve been looking out lengthy and exhausting to deliver buyers excellent news this yr. This week, I lastly discovered some.
It has been a banner yr for dividends. The truth is, 2022 is about to interrupt data.
Money dividend payouts in 2022 are anticipated to leap 10% over final yr’s. Subsequent yr, money payouts are anticipated to rise much more, albeit at a slower price.
Sadly, dividend cuts are accelerating too. Through the 12 months ending September 30, 2022, 232 firms decreased their widespread and/or most popular inventory dividends. That’s up 31% from the identical interval in 2021, when 177 firms reduce their payouts.
At present greater than ever, dividend security is a key weapon within the struggle to guard your portfolio. This yr, Chief Earnings Strategist Marc Lichtenfeld’s Security Internet column has predicted quite a few dividend cuts. A few of them have been downright disastrous.
Let’s end the yr by revisiting a few of his finest calls with a “Security Internet Dividend Minimize Roundup.”
A Dividend So Not Good, We Wrote About It Twice
Once we wrote about Lumen Applied sciences Inc. (NYSE: LUMN) again in March, it had an oh-so-enticing 9.34% dividend yield. Nonetheless, we mentioned the outlook for the “F”-rated telecommunications firm over the subsequent yr was “bleak to say the least.”
The corporate was making an attempt to promote a few of its dying companies, resembling conventional cellphone companies, so it might deal with its broadband enterprise. Lumen was starting to really feel the ache of promoting off $10 billion price of property as its free money movement started to say no quickly.
Lumen was a serial dividend cutter. Its dividend, we mentioned, was something however secure.
Quick-forward six months to September, when Marc wrote about Lumen once more.
This time the corporate was sporting an excellent greater 12.3% yield. It had simply introduced on a brand-new CEO who had but to declare her dividend intentions.
Marc mentioned it wasn’t exhausting to think about her slicing the dividend if free money movement continued to deteriorate whereas she executed her turnaround plan.
He was proper.
On November 2, as a part of its third quarter earnings launch, Lumen revised its capital allocation coverage and eradicated its dividend.
The corporate additionally missed analysts’ earnings expectations, and its inventory plunged almost 18% in someday on the information.
As of this writing, shares are 24% decrease than they had been on November 1, and Lumen buyers don’t also have a dividend stream to indicate for it.
An Oversize Dividend That Was Stuffed with Ship
In November, Marc reviewed the dividend security of Israeli transport firm Zim Built-in Transport (NYSE: ZIM).
On the time, the corporate had paid out $27.10 per share over the prior 12 months, giving it a mind-blowing 100% dividend yield.
Marc assured readers it was actual. He was additionally sure that it wouldn’t final.
The truth is, he gave it an “F” ranking and referred to as a dividend reduce “virtually a positive factor.”
As soon as once more, Marc was proper.
On the very day that his Security Internet article was revealed, Zim declared a $2.95 per share quarterly dividend. It was 38% decrease than the $4.75 per share dividend it distributed within the prior quarter.
Now, though Marc was proper, he wasn’t essentially psychic.
Zim has a publicly acknowledged dividend coverage that anybody can learn. The shipper pays out 20% to 30% of its internet revenue throughout the first three quarters of the yr with a attainable step-up to 50% within the fourth quarter.
Internet revenue is predicted to fall considerably over the subsequent two quarters, which suggests the dividend will decline too.
So long as Zim stays worthwhile, buyers can anticipate to obtain a wholesome dividend – simply not as massive because it was over the past 12 months.
It is a good instance of a vital lesson that every one dividend buyers should study…
If a dividend yield appears to be like too good to be true, it in all probability is.
“D” Is for Dodgy Dividend
It’s not simply the “F”-rated shares dividend buyers must be careful for. Dividends with “D” scores aren’t secure both.
“D”-rated Chimera Funding Corp. (NYSE: CIM) proved my level when it reduce its quarterly dividend by 30% in September from $0.33 per share to $0.23 per share.
Shares of the mortgage actual property funding belief (REIT) plunged 9.5% on the information.
Marc warned readers in March that he suspected one other dividend reduce could also be on the horizon.
Mortgage REITs borrow cash within the quick time period and lend it out in the long run at larger charges. The distinction is known as internet curiosity revenue (NII), and it’s the way in which we decide a mortgage REIT’s capability to afford its dividend.
Chimera’s NII is inconsistent. Whereas Marc mentioned he would like to see it develop yearly, Chimera has been unable to try this.
He additionally mentioned that the mortgage REIT has a “dodgy dividend historical past” with a behavior of slicing the dividend when instances get robust.
Occasions bought robust once more… and Chimera made the reduce to its dividend.
Nicely, that’s all for 2022. Marc will likely be again subsequent week with a brand new Security Internet evaluation.
I want you all a cheerful, wholesome and affluent 2023!