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Explorer ○○

Re: This time is different - Dividend cuts

My old Cracker b.(CBRL) came to me and let me have the bad news. With all their stories closed except for take outs they are changing May dividend to Sept. and stopping all future dividends for time being. I have two choices to make. Bring HON and TXN off bench and rest CBRL or if I sell CBRL and divide it by my present dividend then I can draw the same amount of money for 18 years! That would make me 95 when I run out of their money! Sometimes it pays to be old! :)

Copie 

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Explorer ○○

Re: This time is different - Dividend cuts

copie, I felt the same. Was torn on what to do with my CBRL. I sold today for $91; had bought it for $58 a few weeks ago. I decide to get out since I will not be getting a dividend.   I added to some of my stocks that had dropped in price during the dips.  I'm going to hold on to the rest of my cash for now.

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Explorer ○○○

Re: This time is different - Dividend cuts

Darden's, Texas Roadhouse and other's too my good man.

Cracker Barrel, Olive Garden Parent Darden Suspend Dividends as Business Falters

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Valued Contributor

Re: This time is different - Dividend cuts

"Dividend cuts for REITs will depend on their annual REIT taxable income, as the REIT must distribute at least 90% of this."

Dividend cuts in MREIT and MBS space are also on the horizon, due to the negative convexity effects in response to the end of the 40 year Great Bond Bull Market, and the refinancing of mortgages.  Nevertheless, NLY, the largest player announced their regular divey, going ex on Monday!

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Valued Contributor

Re: This time is different - Dividend cuts

Tangier Factory Outlets, SKT, was dropped from the 20 year divey aristrocrat ETF, SDY, earlier this year, but NOT for cutting its divey!  It fell below the minimum market cap for inclusion in the ETF, while still in the underlying index!

Bruce, what do you think of SKT, going forward?  My guess is that they won't cut their divey.

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Follower ○○○

Re: This time is different - Dividend cuts

Hello Bruce

Two Harbors announced the suspension of the divs for their common and preferred stocks. It is my understanding that the common div is not cumulative, meaning it is lost after suspension until it is resumed. Is that correct? Is t he common div lost once it is suspended? 

TIA

Eng

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Highlighted
Explorer ○○

Re: This time is different - Dividend cuts

Fwiw I am going to stay with Cracker b. This could all be over by June 1 and they will reopen. Its not that business was bad and they was not making any money. I can not see all the stories on interstate going away. One thing about it if you sell shares or collect dividends for your needs its not a good stock to depend on!

Copie

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Contributor ○

Re: This time is different - Dividend cuts

"Fwiw I am going to stay with Cracker b"

Agree. I will hold my 100 shares, not so much because I think their dividend will resume and there's no point in selling when its at such a depressed price except for maybe tax loss selling. The real reason to hold is CBRL is it is one of the best managed companies I've ever analyzed from the standpoint of cash flow progression. They have been picture perfect. One of the things I learned early is to never abandon competent management unless the stock's sector is the road to extinction. The day will come with restaurants reopen and people line up to go back to their favorite casual diner and dollars to their crispy chicken, CBRL will have long lines.

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Explorer ○○

Re: This time is different - Dividend cuts


@EnvEng wrote:

Hello Bruce

Two Harbors announced the suspension of the divs for their common and preferred stocks. It is my understanding that the common div is not cumulative, meaning it is lost after suspension until it is resumed. Is that correct? Is t he common div lost once it is suspended? 

TIA

Eng


Common shares are not cumulative and will not start until after dividend is restored to preferred stock.

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Contributor ○

Re: This time is different - Dividend cuts

Chuck

not sure what to think about SKT. Clearly, like other social gathering space companies, their revenues are about to drop to zero, so the dividend will stop. But once the CV is under control, will shoppers want to return to outlets? I can't see any reason why not, and I'm sure there will be some pent-up demand. No plan on selling.

BruceM

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Contributor ○

Re: This time is different - Dividend cuts

Hi @EnvEng 

I looked up TWOpE on M* and it shows a price of $17.67, suggesting either the market is unaware of an announced dividend suspension or the dividend has not been suspended. But at this price, if the common dividend were cut to zero, this preferred would likely drop sharply as the market would no longer be confident in the dividend...so there's a disconnect somewhere.

Also, for some reason, quantumonline does not list TWO's preferreds and I haven't looked up this preferred on the company web site so not sure if the preferred dividend is cumulative, but every REIT preferred I've ever seen is cumulative.

There are some decent preferred yields out there today, but I think I'd stick with the companies whose cash flows would not likely be too adversely effected by a protracted market decline, such as utilities and insurance companies.

BruceM

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Valued Contributor

Re: This time is different - Dividend cuts


@BruceM wrote:

Chuck

not sure what to think about SKT. Clearly, like other social gathering space companies, their revenues are about to drop to zero, so the dividend will stop. But once the CV is under control, will shoppers want to return to outlets? I can't see any reason why not, and I'm sure there will be some pent-up demand. No plan on selling.

BruceM


I'm not so sure their revenues will drop to zero.  That assumes all tenants skip monthly lease payments.  Which may happen, of course, but there are some 'kickers' in both today's $2.4 trillion stimulus package along with the associated $4 trillion Fed/Treasure actions already going on!

My 'guess' is that factory outlets will be among the first businesses to 'reopen', given that none of the outlets, to my knowledge, are located in Times Square!  8-))

Regardless, it's impossible to really understand this month, let alone the economy, and financial markets, going forward.  Equity REITs, like SKT, SHOULD behave differently than MREITs, like NLY (Annaly Capital)!

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Explorer ○○○

Re: This time is different - Dividend cuts

L Brands  - the company has postponed quarterly dividend payments beginning in the second quarter. Its quarterly dividend was set at 30 cents a share. 

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Valued Contributor

Re: This time is different - Dividend cuts

@marymary wrote:

L Brands  - the company has postponed quarterly dividend payments beginning in the second quarter. Its quarterly dividend was set at 30 cents a share. 


In general, should we try to count the stitches on a hanging curve ball by differentiating, and counting, companies that 'postpone' or 'suspend' their divey, like LB or BA, from those who cut, or eliminate, their divey?  For example, BA suspended their divey last Friday, but announced today that they won't be taking any money from the government!

Likewise, BDCs, REITs and MREITs are required to distribute 90% of their income each year to comply with government regs.  HOWEVER, they can defer, postpone, or suspend their divey to the end of the year, to help get through a quarter or two of pain.  Ditto for divey aristrocrats that tally year over year growth, not quarter over quarter.

Finally, although I am not so sure anymore, but some companies, like oil tankers, used to pay quarterly diveys that were variable, going up whenever the spot oil transport price was up for the quarter while going down whenever rates tanked.

On the other hand, some companies cut or eliminate diveys whenever their long term prospects are looking down.  That's the mindset we most often assume whenever discussing divey growth investing.

(Asking for a divey growth investor friend!)  8-))

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Contributor ○

Re: This time is different - Dividend cuts

"Equity REITs, like SKT, SHOULD behave differently than MREITs, like NLY (Annaly Capital)!"

Yes, but its going to depend on who the REIT leases space to.

Hospitality (hotel/motel), leisure and retail REITs are going to be hit hard, as their tenants have to essentially shut down. No revenue, no rent payment. Even if they're eligible for relief from the CARES Act just passed, it'll be bare subsistence to keep them out of bankruptcy reorganization and I doubt (but not sure) that such subsistence will be treated as income for REIT Taxable Income purposes and the 90% rule.

However, REITs leasing space to businesses not involved in social gathering will be far less impacted. These will include such REIT sectors as storage (personal and industrial), Industrials, triple nets, residential and some specialty REITs.

As to MREITs, I have no idea what's sending them on the highway to hell...but they seem to be headed that direction.  This may be a concern over residential mortgage loans increasing defaults, particularly if the economy does not get back to 'normal' operations soon and homeowners start getting in arrears on monthly payments.

BruceM

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Explorer ○○

Re: This time is different - Dividend cuts

What does anyone think about a dividend cut for Oneok (OKE) ? I looked at the numbers and it looks to me that unless they go in debt more they can not cover their .935 dividend. Unless I have gone complete around the bend their yield is around 18%! I like some of you hold this stock.

Copie

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Participant ○○○

Re: This time is different - Dividend cuts

Article on possible div cuts from Market Watch.  link 

 

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Participant ○○○

Re: This time is different - Dividend cuts

I'm starting to wonder if dividend oriented portfolios are sustainable. Even if a corporation has the cash flow to maintain a dividend, if a dividend cut or elimination becomes a competitive advantage, won't all companies follow suit?

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Contributor ○

Re: This time is different - Dividend cuts

" if a dividend cut or elimination becomes a competitive advantage, won't all companies follow suit?"

Other than those who must distribute all or part of their earnings (REIT, BDC, Funds), dividends are indeed discretionary but they are paid for two reasons: 1) the IRS excess retained earnings rule. 2) but most important, to compensate shareholders for the use of their cash investment. As an example, one of the arguments that gets raised from time to time is why regulated utilities pay dividends. On the surface this seems to be a waste of utility customer's money causing utility rates to be higher than they should be. But for the regulated utility to be able to go out into the marketplace and raise capital to pay for capital projects necessary to run the utility, the utility must compensate those who purchase their issued stock or issued debt. With debt the compensation is fixed interest rate payments with very little or no growth potential. With equity, the payment is primarily dividends with small growth potential. Without dividends, the utility would get far less per share when stock is issued meaning either more debt would have to be issued at higher interest rates or utility rates would have to go up to consumers to cover capital costs.

Generally....and that's with a Capital G....dividend paying stocks are financially the most healthy and tend to do better during recessions. But with the COVID-19 infection, the rules are being changed. This is not an economic crisis.....its a cash flow crisis for industries who rely on the gathering of many individuals in close proximity to one another as a necessary part of their business model.

As I told my brother this last summer as they were getting ready to retire and rebalance their newly rolled over TIRA, and who was mussing about a possible recession.....the next recession, I explained, will be caused by something we cannot see and no one will predict. I genuinely hate being right on this one.

BruceM

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Valued Contributor

Re: This time is different - Dividend cuts

Need to review dividend data from the individual companies. There are better metrics to use than estimated earnings to dividend coverage ratio used by Market watch. For example T will have $26B in free cash flow but dividend will only be 15B. T ceased a 4B buyback program. 

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