Revenue is at its lowest level in at least a decade. Sales dropped 12% in the first quarter. And the company hasn’t been profitable since 2020.

But the stock does pay a juicy $0.25 per share quarterly dividend, which equates to a 7.2% yield.

Can Xerox continue to offer such a high payout to shareholders?

To its credit, despite plummeting sales and profitability, Xerox is cash flow positive.

In 2023, it generated $649 million in free cash flow and paid shareholders $165 million in dividends for a very low payout ratio of 25%. This year, free cash flow is forecast to dip to $613 million, and the payout ratio is projected to inch up above 28%.

However, Xerox cut its dividend slightly in 2017. That shows that management can and will slash the dividend if necessary.

Given that the company’s cash flow easily covers its dividend, I don’t believe another cut is imminent. But the lower projected free cash flow in 2024 and the past dividend cut mean investors shouldn’t feel overconfident.

Dividend Safety Rating: C

What stock’s dividend safety would you like me to analyze next? Leave the ticker in the comments section.

You can also take a look to see whether we’ve written about your favorite stock recently. Just click on the word “Search” at the top right part of the Wealthy Retirement homepage, type in the company name and hit “Enter.”

Also, keep in mind that Safety Net can analyze only individual stocks, not exchange-traded funds, mutual funds or closed-end funds.

The post Is Xerox’s 7% Yield as Shaky as Its Stock? appeared first on Wealthy Retirement.

As of Monday, the company changed its name to Rithm Capital (NYSE: RITM). It will now manage the business internally, rather than have outside managers take care of the portfolio.

The dividend safety rating has been downgraded, but that has more to do with past performance than what is expected.

This year, NII – the measure of cash flow we use for mortgage REITs – is expected to soar. For the full year, Wall Street forecasts NII to come in at $1.6 billion.

That is the highest number in years. Mortgage REITs typically make more money when interest rates are higher, so it’s no surprise that NII is projected to increase as rates come off historic lows.

Rithm currently pays a $0.25 per share quarterly dividend, which comes out to a 9.3% yield.

The company should have no problem covering the current dividend if its NII is near the $1.6 billion forecast. It could even raise the payout substantially, as it is expected to pay shareholders $476 million in 2022.

The problem is the company’s new name won’t shake off the stink of the last few years.

The company slashed its dividend by 90% in 2020 from $0.50 per share to $0.05. Even after several dividend increases, the current dividend is half of what it was two years ago.

That tells us that when the going gets tough, management cuts the dividend.

Last year’s payout ratio was also too high at more than 100% of NII. With NII expected to spike this year, that’s less of a problem, but it does show that management overextends itself from time to time.

This year looks to be a good year, but it wouldn’t surprise me if the company gets ahead of itself again and boosted the dividend to unsustainable levels as it has in the past.

I don’t expect a dividend cut in the immediate future. But the company has proven that it does not do a good job of managing the dividend.

Investors should receive their expected dividend in the immediate future, but past that, there’s a good chance Rithm Capital will have to cut again.

Dividend Safety Rating: D

If you have a stock whose dividend safety you’d like analyzed, leave the ticker symbol in the comments section.

You can also check to see whether we’ve written about your favorite stock recently. Just click on the magnifying glass in the upper right corner of the Wealthy Retirement homepage and type the company’s name in the box.

Good investing,

Marc

The post New Name… and Higher Risk of a Dividend Cut for This 9% Yielder appeared first on Wealthy Retirement.

It just raised its dividend in a big way. Shareholders received $2.10 per ADS (American depositary share). That’s a 75% hike from a year ago, and it gives the stock an impressive 5.7% yield.

But should investors feel confident that the $2.10 per share dividend can be sustained?

In 2020, Ternium’s free cash flow grew a gigantic 34% to $1.61 billion from $1.2 billion.

And that’s up from $595 million in 2019, so free cash flow has been growing strongly for several years.

Of the $1.2 billion in free cash flow created in 2020, Ternium paid shareholders just $412 million for a very low payout ratio of 34%.

As a guideline, I like to see companies with payout ratios of 75% or less of their free cash flow.

This year, Wall Street projects $421 million in dividends for an even lower 26% payout ratio.

Ternium started paying a dividend in 2007. In 2009, during the Great Recession, it eliminated the payout entirely before bringing it back to previous levels the following year.

In 2013, Ternium reduced the dividend to $0.65 from $0.75 per share. Since then, it has raised the dividend six times.

So we have a robust 5%-plus yielder that generates mountains of cash flow, much more than is needed to pay the dividend – even the 2021 dividend that grew by 75%.

The one concern is that management has shown its willingness to reduce the dividend when necessary.

I don’t expect that to be necessary in the next 12 months with these big cash flow numbers and low payout ratio. In the near term, the dividend is safe.

Dividend History Rating: B

If you have a stock whose dividend safety you’d like me to analyze, leave the ticker symbol in the comments section.

You can also check to see whether I’ve written about your favorite dividend payer recently by clicking on the magnifying glass on the upper right corner of the Wealthy Retirement homepage and typing in the company name.

Good investing,

Marc

The post Can This Steel Producer Sustain Its Generous Dividend Hike? appeared first on Wealthy Retirement.

The stock pays a quarterly distribution (MLPs pay distributions, not dividends) of $0.6875 per share, which comes out to a massive 9.5% yield. But can investors expect to continue to receive that massive payout?

MPLX had been growing cash available for distribution (a measure of cash flow used by MLPs) steadily. Last year, cash flow jumped to $4.33 billion from $3.49 billion, due in part to an acquisition in 2019.

This year, however, cash available for distribution is forecast to take a step backward to $4.13 billion.

SafetyNet Pro does not like to see cash flow declines. Along with dividend cuts, cash flow declines are among the most severe infractions a company can make when it comes to SafetyNet Pro dividend safety ratings.

The good news is that MPLX’s payout ratio is low. In 2020, it paid out just 70% of its cash available for distribution. I’m comfortable with an MLP paying out as much as 100%.

MLPs are pass-through investments, which means in order for them to pay no income tax, they must distribute their income to shareholders. That is why yields for MLPs are high – because they distribute most or all of their income. As a result, many MLPs pay all of their cash flow to shareholders in the form of distributions.

This year, due to share repurchases, despite the slightly lower expected cash flow, MPLX’s payout ratio is forecast to dip to 69%.

MPLX has a short but impressive distribution-paying history. It began paying investors in 2014 and has raised the distribution every year since.

Because of the low payout ratio and solid distribution track record, MPLX’s dividend safety rating really comes down to whether cash available for distribution does slip this year as forecast.

As of right now, the distribution is still considered safe because of the other factors that I mentioned. But if cash flow does end up lower this year and is forecast to drop again in 2022, that could deteriorate the safety rating further.

On the other hand, if cash flow comes in higher than last year’s total – which is certainly possible because we’re talking about only a $20 million difference (out of more than $4 billion) between what is expected this year and last year’s number – the distribution would be considered rock-solid.

So the final 2021 cash available for distribution number could have a big impact on the dividend safety rating a year from now.

In the meantime, over the next 12 months, the distribution is fairly safe.

Dividend Safety Rating: B

If you have a stock whose dividend safety you’d like me to analyze, leave the ticker symbol in the comments section.

And don’t forget to check to see whether I’ve written about your favorite dividend stock recently. Just click on the magnifying glass in the upper right corner of the Wealthy Retirement homepage and type in the name of the company.

Good investing,

Marc

The post Can This 9.5% Yielder Withstand a Fall in Cash Flow? appeared first on Wealthy Retirement.

And this year, free cash flow is forecast to double last year’s total.

This year, Nordic American Tankers is expected to generate $103 million in free cash flow while paying out $62 million in dividends for a payout ratio of 60%.

In a normal year, that would not be a problem. But no one would describe 2020 as a normal year. Because of the pandemic and its economic effects, I have reduced my acceptable payout ratio for companies rated by SafetyNet Pro.

Normally, anything below 75% is fine. But because of the severe economic damage caused by the virus, I have reduced the payout ratio limit to 50%.

That’s an admittedly conservative number, but I don’t want investors to get caught by surprise if a company cuts its dividend.

Lowering the payout ratio threshold to 50% gives me more confidence that a company will avoid a dividend cut even if 2021 is difficult.

If the economy rebounds, I will lift the limit back to 75%.

For now, Nordic American Tankers’ 60% payout ratio is too high, and SafetyNet Pro penalizes the stock as a result.

More significant is that the company has a history of cutting the dividend. Nordic American Tankers slashed the dividend several times in the past 10 years. That kind of track record suggests management won’t hesitate to do it again when it deems necessary.

This year, the company has boosted the dividend significantly, from $0.10 last year to $0.45 this year. That gives the stock a robust 13.2% yield.

If Nordic American Tankers boosts its free cash flow in 2021, or if I raise my payout ratio limit back to 75%, the stock will likely get an upgrade.

Its history of cutting the dividend often won’t make it especially highly rated. But it should get a lift from the bottom of the ocean floor.

Dividend Safety Rating: F

If you have a stock whose dividend safety you’d like me to analyze, leave the ticker symbol in the comments section.

Good investing,

Marc

The post Will This 13.2% Yield Stay Afloat? appeared first on Wealthy Retirement.

Then, the pandemic occurred. Shares of the mortgage real estate investment trust (REIT) fell from a high of $17.66 to a low of $2.91. Today, it trades around $8, less than half of where it was in February.

Perhaps even more upsetting to income investors is that management slashed the quarterly dividend by 90% to $0.05 from $0.50. In the two quarters since, it has raised the payout by $0.05 per share each quarter, so the dividend now stands at $0.15, which equals a 7.1% yield.

Can investors bank on continuing to receive $0.15 per share each quarter?

Mortgage REITs make money by borrowing money at lower short-term rates and lending it out at higher longer-term rates. The difference, minus expenses, is known as net interest income (NII), and that is what we use to determine a mortgage REIT’s ability to pay its dividend.

Even before the pandemic, New Residential Investment’s NII was headed in the wrong direction…

Last year’s NII was less than half of what it was in 2017. This year, NII is expected to rebound, but it is still more than 20% lower than 2018’s total and 35% below 2017’s total.

SafetyNet Pro does not look kindly upon declining cash flow or NII.

That disastrous NII figure from last year means that New Residential Investment could not afford its dividend. It paid out $808 million in dividends while generating only $579 million in NII.

So even if the pandemic hadn’t occurred, New Residential might have been forced to cut the dividend anyway – especially because this year’s NII, while forecast to be better than last year’s, is still expected to be below $800 million and wouldn’t cover the dividend if the total paid remained the same.

Due to the drastic reduction of the dividend, New Residential is now projected to pay out just $204 million, giving the company plenty of room in case NII comes in below expectations.

But with New Residential’s declining NII and recent dividend cut, SafetyNet Pro says this is a dividend that can’t be trusted. It will take a few years of increasing NII, low payout ratios and a stable dividend to restore confidence that the dividend, at whatever level, is safe.

Dividend Safety Rating: F

If you have a stock whose dividend safety you’d like me to analyze, leave the ticker symbol in the comments section.

Good investing,

Marc

The post Can This 7.1% Yield Be Trusted? appeared first on Wealthy Retirement.

At the time, I said that until the company proves it can lift net interest income above how much it pays in dividends, it gets a very solid “F” rating. And sure enough, a few months later, it cut its quarterly dividend from $0.25 per share to $0.22.

Back in February, Annaly was expected to generate $1.77 billion in net interest income in 2020. Net interest income is the money a mortgage real estate investment trust makes by borrowing cash short term and lending it out long term.

That would have been enough to cover the projected $1.43 billion in dividends.

Today, the net interest income forecast has been just about cut in half. Now the company is expected to generate only $955 million while paying out $1.28 billion.

That earns a demerit from SafetyNet Pro.

The dividend forecast is lower because Annaly reduced the dividend in the second quarter.

You don’t have to be a trained market analyst to look at this chart and know that things aren’t going in the right direction for the company and its dividend.

Some companies will do whatever it takes to sustain the dividend. Even in tough times, they’ll dip into cash or raise debt – anything to continue paying shareholders the same or even a higher dividend.

Annaly is not one of those companies.

Since 2011, it has cut its dividend nine times. In fact, since then, the dividend has fallen by 66% while its stock has unsurprisingly slid 56%.

A $0.22 per share quarterly dividend may sound enticing, given that it comes out to a 12% annual yield based on the current price.

But the likelihood of that dividend staying at $0.22 is about the same as the likelihood that Donald Trump and Nancy Pelosi become BFFs (best friends forever) and enjoy picnics together every Sunday afternoon.

Look for another dividend cut from Annaly within the next 12 months.

Dividend Safety Rating: F

If you have a stock whose dividend safety you’d like me to analyze, leave the ticker symbol in the comments section.

Good investing,

Marc

The post A 10th Cut in 10 Years for a 12% Yielder? appeared first on Wealthy Retirement.

I’d put Jim Simons – the brilliant quant investor who started Renaissance Technologies, one of the most successful hedge funds in history – on it as well.

I’m not sure whether Carl Icahn would be on it or not, but he’d be mentioned in the conversation.

Icahn is the chairman of Icahn Enterprises (Nasdaq: IEP), a master limited partnership (MLP) that invests in the energy, real estate and automotive sectors, among others.

The company recently declared a $2 per unit distribution (MLPs’ form of a dividend). That comes out to a whopping 16% yield. But can Icahn continue to pay shareholders that steep of a yield?

Most MLPs report quarterly results in terms of distributable cash flow (DCF). Icahn Enterprises doesn’t. Instead, it reports net income attributable to Icahn Enterprises.

Net income isn’t the best metric to measure dividend safety. But it’s what this company reports, so that’s what we have to use.

If you can’t be with the one you love, love the one you’re with…

In 2019, net income attributable to the company was negative $1.1 billion. It was also negative in the first six months of this year.

EBITDA (earnings before interest, taxes, depreciation and amortization), which is considered a watered-down version of cash flow, was also negative in the first six months.

With these numbers, of course Icahn Enterprises’ payout ratio is a negative number. That means the company has to raise money from debt or dip into cash to pay the distribution.

Next year, earnings are expected to improve but still be negative.

This is not unusual for Icahn Enterprises. Since 2016, net income has been positive only twice.

Yet, the company has a solid recent distribution-paying track record.

Icahn Enterprises began paying a distribution in 2005. It cut the distribution in 2011 and then eliminated it until 2013. But since then, there have been no reductions and four increases.

In recent years, management has shown a commitment to the distribution, but the financials don’t support it. Management could easily cut the distribution in half and still pay a generous 8% yield that would be better than most dividend payers’ payouts.

With Icahn’s 16% yield and financials that can’t afford the distribution, you have to consider the possibility that the distribution will be cut.

Dividend Safety Rating: D

If you have a stock whose dividend safety you’d like me to analyze, leave the ticker symbol in the comments section.

Good investing,

Marc

The post Can This Legendary Investor Keep Paying Shareholders 16%? appeared first on Wealthy Retirement.

I’m a lifelong Yankees fan, and I will argue to my dying breath about the superiority of New York bagels and pizza…

But one thing I don’t love is the dividend safety of New York Mortgage Trust (Nasdaq: NYMT).

The mortgage real estate investment trust (REIT), based on Park Avenue in Manhattan, pays a $0.05 per share quarterly dividend.

It makes money on the difference between how much it pays in interest on the money it borrows and how much it makes in interest on the money it lends or invests.

This profit is called net interest income (NII). New York Mortgage Trust’s NII is growing, which is a good thing.

In 2020, Wall Street expects the company to make $138 million in NII, up from $128 million last year and significantly up from the $79 million it earned in 2018.

But last year, the company paid out $188 million in dividends…

The $128 million it made in NII last year, while up sharply from the prior year, was not enough to cover the dividend.

This year, New York Mortgage Trust is expected to pay just $52 million in dividends.

This is because it eliminated payouts to shareholders in March and slashed the dividend by 75% in June from what it paid seven months prior.

In February 2019, the last time I covered New York Mortgage Trust, I said I expected a dividend cut because the company paid out more in dividends than it brought in and because it had a history of reducing its dividend.

This year, it should be able to cover its lower payout, but considering its dividend-cutting track record, it’s only a matter of time before it happens again.

New York Mortgage Trust has lowered its dividend payout five times in the past 10 years.

There’s an expression… “When someone shows you who they are, believe them.”

New York Mortgage Trust has shown it is a serial dividend cutter. It will disappoint shareholders again.

The company may raise the dividend if the economy rebounds and NII comes in where analysts expect…

But make no mistake about it. New York Mortgage Trust will cut its dividend when times get tough, just like it did in half of the years over the past decade.

Dividend Safety Rating: F

If you have a stock whose dividend safety you’d like me to analyze, leave the ticker in the comments section.

Good investing,

Marc

The post This 7% Yielder Is a Bad Apple appeared first on Wealthy Retirement.

I said a dividend cut seemed like a sure thing.

I was right. AGNC slashed the dividend less than a year later.

In September 2019, I revisited AGNC. In that article, I said the dividend safety rating of the mortgage real estate investment trust (REIT) was no longer the worst I’d ever seen, but also that I expected another dividend cut was coming.

Sure enough, seven months later, AGNC lowered the dividend to $0.12 from $0.16. It was the company’s ninth cut in 10 years.

Will we get No. 10?

The answer isn’t quite as obvious as it was a year ago. The company’s track record is horrid. Nine dividend cuts in ten years is about as bad a history as you’ll see.

On the other hand, net interest income is expected to rise above what AGNC will pay in dividends for the first time in several years.

(Net interest income is how we measure a mortgage REIT’s cash flow.)
Last year, AGNC generated just $693 million in net interest income while paying out more than $1.14 billion in dividends. So you can see why that was unsustainable.

With the recent cut, the company is now forecast to shell out $895 million in dividends in 2020, which is below the $1.09 billion in net interest income that it is expected to bring in.

So for the first time in a while, AGNC can afford the dividend – if it hits its numbers this year.

AGNC still has to prove itself to me and to SafetyNet Pro. Posting more net interest income this year than it pays in dividends will be a good start.

But like a kid who gets sent to the principal’s office every week, AGNC will have a tough time repairing its reputation. It has a lot of work to do, and it will probably take a few years before it can shake that “serial dividend cutter” label.

Dividend Safety Rating: F

If you have a stock whose dividend safety you’d like me to analyze, leave the ticker symbol in the comments section.

Good investing,

Marc

The post A Stock With a Double-Digit Yield and Improving Dividend Safety appeared first on Wealthy Retirement.