All things considered, it can’t be terribly surprising General Electric Company (NYSE:GE) opted to reduce its dividend. Whispers of such a move have been circulating for a while, and it’s not exactly a big secret that GE can’t actually afford to pay out what it’s been passing along as dividends to shareholders of late.
The relatively new CEO John Flannery flat-out told shareholders he was mulling the possibility back in October!
If you think GE is the only company out there with a dividend in crisis, however, think again. There are a bunch of other dividend-payers out there that may have to make a similar tough decision in the foreseeable future, as business just hasn’t been as good as it was supposed to be at this point in time.
In no certain order, here’s a closer look at nine more dividend stocks that could soon see a dividend cut of their own.
It’s pretty much understood that the internet has been chipping away at traditional newspapers, and will continue to do so in perpetuity. Newspaper company Gannett Co Inc (NYSE:GCI) hasn’t meaningfully grown its top line since 2012, and earnings have been steadily shrinking the whole time as the company has to spend more to earn less.
And that’s why one can’t help but wonder if the quarterly dividend of 16 cents per share is nearing its end. Over the course of the past four quarters Gannett has lost a total of two cents per share, extending a long string of shrinking profits all the way into the red.
Some shareholders are still looking for a turnaround, but there’s no trick up the company’s sleeve that could plausibly create the kind of turnaround needed here.
At first glance it seems video game retailer GameStop Corp. (NYSE:GME) has held up relatively well, considering the industry has become one that favors mobile games and downloads. The past four quarters’ cumulative top line of $8.7 billion is actually up a bit from 2016’s total, and analysts currently believe GameStop is going to maintain its revenue and earnings pace for the foreseeable future. The annualized dividend of $1.48 may not grow leaps and bounds going forward, but it’s a relatively small fraction of the $3.33 per share the pros expect GameStop to report for all of next year.
That’s a mighty big bet, though, about an outfit in the midst of an industry that’s changing faster than many investors can keep up with. Gamemakers Microsoft Corporation (NASDAQ:MSFT) and Sony Corp (ADR) (NYSE:SNE) both now have organized means of selling video games directly to gamers, increasingly making GameStop an unnecessary middleman.
The danger isn’t highly evident yet, but waiting until it is crystal clear could be too late.
Chatter about Centurylink Inc (NYSE:CTL) axing its payout are nothing new. It’s been floating in the market’s ether for months now, and for good reason; the company is consistently earning a lot less than the 54 cents per share it’s paying out every quarter. Yes, the yield of 14% makes it one of the most attractive dividend stocks to own, but Centurylink can’t give more than it gets in perpetuity.
Not everyone agrees the company’s payout as we know it is doomed. Oppenheimer’s Timothy Horan and Tom Shaughnessy recently wrote “Management is laser-focused on maintaining its current dividend, and, pro forma, has the FCF to support it.
At a 13% yield, it is logical to cut the dividend in half to spend more on network CAPX, but management is unlikely to do so. We now see the payout ratio in the 80% range.”
Even so, the pair of optimistic analysts still expects some sort of cut in the works.
For much the same reason newspaper giant Gannett is fighting a losing battle thanks to the advent of the internet, with a little nudge from Amazon.com, Inc. (NASDAQ:AMZN), so too is bookstore chain Barnes & Noble, Inc. (NYSE:BKS). Sales have been dwindling — a lot — since 2013, in step with the rise of ebooks and tablets other than its Nook.
To its credit, the company is trying to do whatever it can to remain relevant, and fruitful. CEO Demos Parneros made a point of saying at the end of fiscal 2017 in June — when the company reported a 6.3% decline in same-store sales — that he’s looking for “ways to improve the business and reignite sales through an aggressive test and learn process,” adding that he’s developing a “companywide simplification process will take out costs.”
It’s just too little and too late. Barnes & Noble is dishing out 60 cents worth of dividends per year, but is only expected to earn 50 cents per share this year and only 56 cents per share next year.
Any shortcoming puts a dangerous dividend payout on even thinner ice, and there’s no room for the company to invest in its own growth.
“The company has enough debt capacity to buy out Novartis, according to Bloomberg Intelligence. Buying Pfizer’s unit would stretch leverage further. To do either deal while also continuing to pay such a generous dividend will be a reach, and would leave little room to spend on the pharma business. As much as it would like to, Glaxo can’t have it all.”
For perspective, the drugmaker is expected to pay out $2.01 per ADR, on earnings of $2.91 per share this year.
It’s technically enough, but as Nisen noted, the math leaves little to no room for new deals, which GlaxoSmithKline desperately needs right now.
A month ago, yours truly warned that while BP plc (ADR) (NYSE:BP) was starting to see better days in the wake of the 2014/2015 meltdown in oil prices, the company wasn’t healthy enough to sustain the dividend. A couple of weeks later, a surprisingly strong third-quarter report cast a new light on the name.
Though still not “great” by historical standards, stronger crude oil prices were closing the gap between what the oil giant was earning and what it was paying out. Kudos.
Still, as Dana Blankenhorn noted after that earnings report, one good quarter isn’t enough to turn the tide. As strong as the quarter was, BP still didn’t actually earn more than it paid out to shareholders, and sooner or later it’s going to have to invest some of its profits in its own growth.
Never mind the company’s need for a little wiggle room between what’s coming in and what’s going back out.
While most investors are aware of the struggle apparel retailers are facing at this time, it’s not like the apparel makers are faring any better. Take Guess?, Inc. (NYSE:GES), for instance.
It’s faithfully paid its quarterly dividend of 23 cents per share in each of the past four quarters, but not once has the company actually earned more than that amount.
So far the market’s given Guess the benefit of the doubt; GES stock hit new 52-week highs last month. Perhaps investors are planning on the company topping its earnings estimates of 59 cents per share for the current year, and topping forecasts for a profit of 78 cents per share next fiscal year.
That’s a risky bet though. Not only will that level of profit still not fully fund the dividend, Guess? has dished out its fair share of earnings shortfalls over the course of the past few years.
It’s hard to believe, but yes, even a blue chip consumer staples name like The Coca-Cola Co (NYSE:KO), which at one point was in the upper echelon of dividend stocks, is anything but a sure thing on that front now.
The math: Coca-Cola has paid a dividend of 37 cents per share in each of its past four quarters, but has not earned more than 33 cents per share in any of those quarters.
Granted, those are GAAP numbers. On a non-GAAP basis, the soft drink company’s bottom line has more than covered the dividend in each of the quarters in question.
The disparity between the two figures is lingering though, and with revenue as well as per-share profits (GAAP or non-GAAP) still shrinking as consumers make healthier and healthier choices that increasingly exclude sugary drinks from Coke, the company may have to make a tough decision soon … if it wants to keep enough cash to invest in its own growth.
Last but not least, the good news for timber company Weyerhaeuser Co (NYSE:WY) is, the price of lumber has nearly doubled since this time of the year in 2015, translating into greater revenue and higher profitability for the company.
The bad news is, like Coca-Cola, there remains a huge gap between Weyerhaeuser’s GAAP and non-GAAP income. While it can afford to pay its quarterly dividend of 31 cents per share (just upped to 32 cents) on a non-GAAP basis, it’s technically falling short of covering the dividend on a GAAP basis … and has been for a while.
Some will argue the GAAP/non-GAAP earnings matter clouds the issue of affordability, and there’s some truth to that argument. It doesn’t matter right up until the point in time it does matter though.
Throw in the fact that the timber price rally could be setting the stage for a price pullback, and the dividend could be surprisingly pressured sooner than later. Like GameStop, waiting until the risk has become a clear reality means you’ve waited too long.
As of this writing, James Brumley did not hold a position in any of the aforementioned companies. You can follow him on Twitter.