I hope your 2024 is off to a terrific begin.
2023 was a stellar 12 months for Security Internet. It did precisely what it was designed to do: It let that your dividends with “A” and “B” scores had been protected, and it warned you about your dividends with “D” and “F” scores earlier than they had been reduce.
In a single case, it warned you inside minutes of the announcement.
On June 21, I stated “one other dividend discount is a positive factor” for mortgage actual property funding belief Two Harbors Funding (NYSE: TWO).
Inside 20 minutes of the column hitting your inboxes, Two Harbors slashed its dividend by 25%.
One thing related occurred on September 27. I gave International Internet Lease (NYSE: GNL) a “D” score for dividend security, cautioning buyers, “The corporate’s administration might contemplate its revenue to be secure, however I believe shareholders quickly gained’t be capable to say the identical.”
Quickly turned out to be very quickly. 5 days later, the corporate lowered its dividend by 12%.
Throughout the 12 months, 9 shares acquired an “A” grade for dividend security. Not considered one of them reduce its dividend. In truth, six of them raised their dividends. Not one of the eight shares with “B” scores or the eight shares with “C” scores decreased their dividends both.
Nonetheless, as we transfer to the decrease grades, we begin to see some cuts.
Two of the 9 shares with “D” scores lowered their dividends after we issued our grades, whereas six of the 9 with “F” scores did so.
In truth, the typical modifications within the dividends through the 12 months lined up precisely the way you’d count on based mostly on their scores.
One of many few shares with an “F” score that didn’t decrease its dividend is likely one of the mostly requested shares for the Security Internet column: AGNC Funding Corp. (Nasdaq: AGNC).
I reviewed AGNC twice in 2023 – as soon as in January and once more in July.
In January, I really stated, “Buyers can in all probability financial institution on the dividend this 12 months so long as [net interest income] is available in close to the place it’s anticipated.” Nonetheless, I warned that due to the corporate’s monitor document of slicing the dividend when occasions get powerful, there could be one other discount the subsequent time NII turned decrease.
The theme was the identical six months later. The corporate’s NII was nonetheless positive in July, however its 9 dividend cuts in 12 years remained a positive signal that one other reduce was coming in some unspecified time in the future.
This 12 months, NII is forecast to come back in at $2.5 billion, up from an anticipated $2 billion in 2023. And that $2 billion determine is considerably greater than the $1.4 billion projection from again in July.
Primarily based on its present share depend and its $0.36 per share quarterly dividend, the corporate would pay out $895 million in dividends in 2024.
So as soon as once more, AGNC can afford its dividend.
However 9 cuts in 12 years is about as unhealthy a dividend historical past as I’ve seen. A inventory with that many dividend cuts can’t obtain something aside from an “F” score, as a result of administration has made it darn clear that it’ll reduce the dividend when it must.
So this 14.5% yielder’s dividend remains to be at nice threat of being reduce. As was the case final 12 months, it could not occur imminently, however the dividend might be reduce in some unspecified time in the future sooner or later.
Dividend Security Ranking: F
The Security Internet column is right here to assist ensure you don’t get blindsided by a dividend reduce. It did its job in 2023, and I count on it to do the identical in 2024.
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