Investors who seek sky-high yields are aware of the stock, however, thanks to its 16.2% yield.

It’s difficult to analyze the dividend safety of this company because it does not have a long history in its current form.

Though the company got its start in 1998, it has undergone many major transitions along the way.

The most recent was in March of last year when the parent company acquired all of the master limited partnership (MLP). That resulted in a very large increase in free cash flow.

So to compare apples to apples, we can look at only the results from 2019 and this year’s forecast. To look further back than 2019 wouldn’t make sense.

Last year, Antero’s free cash flow was $622 million. But it’s expected to drop down to $487 million this year.

That’s a problem because not only do we want to see free cash flow moving in the other direction, but also, in 2020, free cash flow is unlikely to cover the dividend.

Dividend History

Antero has a short but solid dividend-paying track record. It began paying shareholders in 2015, and it raised the dividend every quarter.

After the acquisition of its MLP, it nearly doubled the dividend. It boosted the payout by $0.02 in July 2019 to $1.23 per share, and it has kept the dividend at that level since.

To put it frankly, Antero Midstream cannot afford its current dividend.

The company just raised $550 million by issuing debt. Some of that cash may be used to pay the dividend, but that’s not what we want to see.

We always prefer that our companies generate more than enough free cash flow to cover the dividend. We don’t want to rely on financial engineering to pay shareholders.

And with a 16.2% yield, Antero could even cut the dividend in half and still offer an attractive yield to shareholders.

I’m not sure what percentage dividend cut is coming, but investors should be ready for one in the next year.

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.

And you can always check Wealthy Retirement to see whether I’ve written about your favorite stock recently. Just click on the word “Search” in the upper right part of the page and type in the name of the company.

Good investing,

Marc

The post Why You Should Beware This 16% Yield appeared first on Wealthy Retirement.

That’s a question income investors in Diamondback Energy (Nasdaq: FANG) should be asking. The stock currently pays a 4.3% yield, yet it doesn’t generate any cash. In fact, it burns cash every year.

Diamondback Energy hasn’t generated positive free cash flow in at least a decade.

The company burned through more than $2.3 billion in 2017, $1.8 billion in 2018 and nearly $1 billion last year, but 2020 has the potential to be a first…

Wall Street predicts free cash flow will be just negative $1.8 million. So if the company beats expectations by just a little bit, it could be cash flow positive.

That’s a heck of an improvement, but it doesn’t solve the problem of how to pay the expected $226 million in dividend payments this year.

The Texas-based oil and gas company has paid a dividend only since 2018, so its history is very short. During that time, despite a lack of any free cash flow, it has boosted the dividend significantly, doubling it from last year.

Now, management has stated that if free cash flow doesn’t cover the dividend, it will “cut capital to ensure [its] dividend is protected.”

So clearly, management takes its dividend seriously. But there comes a point when you eventually need cash to pay the dividend.

A company is not like the government, which can create money out of thin air and then use it to send checks to people…

If a company isn’t generating enough cash to pay the dividend, it pays it out of cash on hand, borrows money or sells stock to raise capital.

As of September 30, Diamondback Energy had $92 million in cash, so not nearly enough to pay shareholders for two quarters – even if it drained its cash holdings.

So that means the company will be selling stock or issuing more debt to pay the dividend.

Management promises to protect the dividend. But if it is not able to generate enough cash flow in the near future, it may have to rethink that pledge.

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 Don’t Sink Your Teeth Into This 4.3% Yield appeared first on Wealthy Retirement.

Energy stocks in the S&P 500 have been sliced in half this year. Others, like NGL Energy Partners (NYSE: NGL), have fared even worse. It’s down 64% year to date.

Tulsa, Oklahoma-based NGL is a master limited partnership (MLP) that transports oil and natural gas liquids through its pipelines.

Earlier this year, it slashed its quarterly distribution (MLPs pay distributions, not dividends) from $0.39 to $0.20 per unit (partnerships have units, not shares). But because the stock has fallen so dramatically, that $0.80 annual distribution still comes out to a 19.8% yield.

Can the company maintain this lower payout?

MLPs use one of two forms of cash flow: distributable cash flow (DCF) or cash available for distribution (CAD). NGL uses CAD.

In fiscal 2020, which ended in March, NGL’s CAD was nearly cut in half to $25.8 million from $49.3 million. However, in fiscal 2021 as the company cuts costs, it expects revenue to rebound.

This makes for an interesting case. Currently, NGL’s numbers are terrible. Revenue, earnings and CAD are falling.

In fiscal 2020, the company didn’t come close to affording its distribution, paying out $244.4 million with just $25.8 million in CAD.

However, because of NGL’s shift in focus to the higher-margin water business from lower-margin propane, its CAD is expected to jump to $229.2 million. That should easily cover a lower $103 million distribution.

NGL also has a lot of debt – more than 10 times its earnings before interest, taxes, depreciation and amortization (EBITDA). That debt has to be serviced, which lowers cash flow.

Lastly, NGL cut its distribution this year and in 2016.

So basically, the company has a lot to prove this year. If its numbers aren’t as strong as forecast, another distribution cut seems likely.

We’ll get a better sense of that in the first week of November when NGL reports quarterly results. Considering things haven’t gotten better in the energy sector, I suspect the company will miss analysts’ estimates.

But regardless of what I expect, when the company reports results, with low cash flow in the past year, high debt and a history of cuts, NGL’s distribution cannot be considered safe.

If in fiscal 2021 NGL proves it can afford its distribution, it will be eligible for an upgrade. But until then, it receives the lowest rating possible.

Dividend Safety Rating: F

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

Good investing,

Marc

The post Will a Recent Cut Save This 20% Yield? 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.

We’re in the same situation today, though now things appear a little worse.

Ford is going through a reorganization as it invests a lot of money into electric vehicles (EVs).

Ford plans to invest $11 billion in developing EV technology. It may ultimately pay off as EVs become more popular.

The company has also already invested $1 billion into autonomous driving car technology and is likely to add more funds to the project, partnered with Volkswagen.

In the long run, that is likely positive news. Ford is investing in the latest trends and is not only keeping up with the times but also attempting to be a leader.

Currently, however, the situation isn’t great. The company’s bonds were recently cut to junk by Moody’s.

That makes it much more expensive for Ford to borrow money, which it does quite a bit. It has $103 billion in long-term debt.

If management wants to improve its bond ratings, keeping more cash available by cutting the dividend could be an option. The cash likely won’t come from decreasing spending on research and development.

Ford has paid the same $0.15 per share quarterly dividend since 2015. It has paid a special dividend twice during that time as well.

It cut the dividend in 2001, 2002 and 2006, although those cuts happened too far in the past to affect Ford’s current dividend safety rating.

The problem is free cash flow is falling, and this year it’s projected to nose-dive 90%.

SafetyNet Pro does not look kindly on companies with shrinking cash flow.

And this year, if Wall Street’s forecasts are right, the company will pay more than three times as much in dividends as it will generate in free cash flow.

Considering that the bond rating agencies are breathing down its neck and Ford’s plummeting cash flow won’t cover the dividend, I’d expect a dividend cut in the near future.

Ford’s $0.60 per share annual dividend comes out to an enticing 6.6% yield. But management is going to have to look under the hood for ways to preserve cash, and the dividend is likely to be a casualty.

Shareholders who invested in Ford for the dividend should buckle their seat belts.

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 Ford Investors Will Have to Be Tough When It Comes to Their Dividend appeared first on Wealthy Retirement.

A major issue was the variability of the company’s free cash flow. Since 2012, free cash flow has been positive only in four years – and that includes estimates for this year.

But I wanted to take another look at Nokia because the Finnish telecommunications company is a big player in the rollout of 5G.

If you’re unfamiliar with 5G, it is the fifth generation of mobile internet connectivity. It is expected to provide much faster speeds and more stable connections.

Some have speculated it will lead to another technology boom, as users will be able to do more things from their mobile devices.

Nokia is a major provider of equipment used to run 5G networks. It has a $3.5 billion deal with T-Mobile (Nasdaq: TMUS) to provide hardware and software for 5G technology.

That is certainly positive news…

But there are quite a few things to be concerned about when it comes to dividend safety.

Free cash flow declined from 1.9 billion euros in 2016 to 1.2 billion euros in 2017. Last year, free cash flow was negative. This year, it’s expected to be a paltry 7 million euros.

Furthermore, Nokia’s dividend history is even more fickle than its free cash flow.

You can see the dividend was stable for a few years at 0.40 euros per share, but it declined in 2012 and was omitted entirely in 2013.

After the payout was reinitiated in 2014, it fell again in 2015 and 2017.

Knowing nothing about the company’s business, all you’d have to do is look at the chart above to understand that Nokia’s dividend is not stable.

While 5G should help the company’s business, until free cash flow rebounds enough to afford the more than 1 billion euros Nokia currently pays in dividends, investors should expect more dividend cuts in the future.

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.

You can also search Wealthy Retirement to see if I’ve written about your stock recently. Just click on the magnifying glass at the top right of the page and type in the company name.

Good investing,

Marc

The post Is This 5G Player’s Dividend Safe? appeared first on Wealthy Retirement.

Today, the company’s yield is more than 11%, but not because the dividend increased. The stock has fallen a bit since I wrote about it.

In last September’s analysis, I stated definitively the dividend was not safe.

To the company’s credit, the quarterly dividend has remained at $0.20 per share.

Has it gotten any better? Let’s take a look.

In February, management said it expects net interest income (NII) to increase in 2019, which would reverse several years of lower NII.

Mortgage REITs make money by borrowing funds at low short-term interest rates and lending it out at higher longer-term rates.

The difference, minus expenses, is NII. This is the best measure of cash flow for this type of business.

While management expects NII to increase in 2019, and while the first quarter’s NII was $62 million (a run rate of $248 million annually), the company will pay around $360 million in dividends over the course of the year if the $0.20 per share payout remains intact.

MFA Financial can’t afford that.

The company has not cut its dividend since 2013, but between 2010 and 2013, the quarterly dividend was lowered seven times.

MFA Financial’s day-to-day business does not generate enough cash to pay its dividend. It needs to either borrow money, dip into its $77 million in cash or slash the payout.

I expect the latter. Although the stock is a bit cheaper and the yield is a little higher than when I first reviewed it 10 months ago, I still don’t think there’s much to like here.

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 Has This 11% Yielder Improved Since Last Year? appeared first on Wealthy Retirement.

The production and use of coal are at 40-year lows even though the economy is twice the size that it was four decades ago. And more coal plants have shut down in the past two years than in the preceding eight.

That’s not good news for Alliance Resource Partners (Nasdaq: ARLP), a coal mining partnership with operations in Illinois, Indiana, Maryland, Kentucky and West Virginia.

It pays a 12.5% dividend yield, which can help appease investors as the business deteriorates. But can those investors count on getting paid the $0.54-per-share quarterly distribution?

Cash available for distribution (CAD), a measure of cash flow for master limited partnerships (MLPs), has been declining over the past few years.

There are no estimates for CAD for 2019 or 2020. Revenue is forecast to grow 7% this year but slip 2% next year.

While earnings are projected to grow in 2019, next year Wall Street expects a 34% decline, after which Alliance Resource Partners’ revenue will slide to its lowest level since 2015. That doesn’t bode well for cash flow.

As of now, the company can still cover the distribution – but if CAD follows earnings next year, it’s going to be pretty dicey.

Also not instilling confidence are two dividend cuts in recent years.

Alliance Resource Partners slashed its distribution in 2016 from $2.66 to $1.99 and then cut it again in 2017 to $1.88. The company has raised its distribution the past two years, but the payout is still below where it was in 2013.

SafetyNet Pro is a quantitative model.

It doesn’t know the coal industry is dying. Even without that knowledge, the dividend safety rating for Alliance Resource Partners is low because of declining cash flow and a history of recent distribution cuts.

When you look at the state of the industry it’s in, the low dividend safety rating makes even more sense.

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

P.S. For even more information about the dramatic changes that are going on in the fossil fuel industry, check out my colleague David Fessler’s new best-seller, The Energy Disruption Triangle: Three Sectors That Will Change How We Generate, Use, and Store Energy.

The post A 12.5% Yield Going the Way of the Dinosaur appeared first on Wealthy Retirement.

Philadelphia sports teams have been quite successful lately, as my friends from Philly constantly remind me. (As I’m a New Yorker, you can imagine how much this stings.)

The same can’t be said for investors in Philadelphia-based Pennsylvania Real Estate Investment Trust (NYSE: PEI). The stock is down 73% since its high in 2016.

The company owns retail real estate, which is based mostly on the east coast of the United States. Its portfolio includes the Cherry Hill Mall in Cherry Hill, New Jersey; the Dartmouth Mall in Dartmouth, Massachusetts; and the Wyoming Valley Mall in Wilkes-Barre, Pennsylvania.

Pennsylvania REIT raised its dividend every year between 2012 and 2015. The quarterly dividend has stayed put at $0.21 per share since February 2015.

The good news is the company can afford the current dividend. The $0.84 per share that it pays to shareholders annually was easily covered in 2018 when the company generated $1.43 per share in funds from operations (FFO), the measure of cash flow used by real estate investment trusts (REITs).

And this year’s expected FFO of $1.24 should also allow the company to pay the dividend.

The problem is that FFO has consistently declined for years.

It’s easy to look at Pennsylvania REIT’s stock and be attracted to the 12% yield. But when you dig deeper and realize that the company generates less cash flow each year, you’ll realize that if management is unable to reverse that trend, eventually the dividend will be in jeopardy.

I don’t necessarily expect a dividend cut in the next few months, but I wouldn’t be surprised if the company reduced the dividend in late 2019 or in the first half of 2020.

FFO has to increase; otherwise, shareholders should get as nervous as Sixers fans when Kevin Durant signs with the Knicks (wishful thinking from this long-suffering Knicks fan).

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 How Long Can This Company Pay Its 12% Yield? appeared first on Wealthy Retirement.

At the time, Annaly received an “F” grade for dividend safety, but I mentioned that things looked like they might be on the upswing. I said that if Annaly was able to grow net interest income (NII), the stock could receive an upgrade in the future.

Mortgage real estate investment trusts (REITs) like Annaly borrow money at short-term rates and lend it out at long-term rates. The money they make is called net interest income.

Income investors have a love-hate relationship with Annaly. The stock entices investors with its double-digit yield, which is currently at 10.5%. But like the kid in school who is too bored to come to class, Annaly is a serial cutter.

The company has lowered its dividend nine times in the last nine years.

Over the past four quarters, Annaly generated $1.14 billion in net interest income – but during that time, it paid out about $1.52 billion in dividends. You can see that it wasn’t able to afford what it was paying out.

SafetyNet Pro sees that as a red flag…

In early May, management once again lowered the quarterly dividend, this time to $0.25 per share. But even at the lowered rate, because of the increasing number of shares (mortgage REITs often raise capital by selling shares), the company will likely pay $1.4 billion in dividends over the next 12 months.

Unless Annaly Capital Management figures out a way to boost NII 23% this year, it won’t be able to afford its dividend again.

With interest rates low and the spread between short- and long-term rates narrow, that will be very difficult to achieve. Mortgage REITs make more money when the spread between the two rates is wide.

Annaly was not able to grow NII in 2018. It looks likely that the number will be lower again in 2019, and the company has averaged just about one dividend cut per year over the past decade.

SafetyNet Pro doesn’t have a grade below “F,” but if it did, Annaly would receive it.

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 Another Cut for This 10.5% Yielder appeared first on Wealthy Retirement.