This is the first in a series of monthly articles that will collect SA reader opinions about companies whose dividends may be in danger. The danger might come from bad economics, sudden catastrophes, margin compression, strategic choices, or there may be other reasons.
This first article collects companies that have been identified over the past couple of weeks. The information for each company has been taken directly from comments and not independently verified. Always perform your own due diligence before making any investment decisions.
Several readers are uneasy about SYY’s dividend. The company has undertaken a deliberate decision to absorb rising food costs in an effort to gain market share from competitors. Some commentators feel that, because of this, SYY may not be able to cover its dividend in future quarters. Earnings have declined (year over year) in each of the 2 most recent quarters. Those tracking producer prices report that food costs for February rose 3.9% following substantial increases in previous months. One reader noted that SYY paid out 100% or more of its free cash flow in dividends for 5 straight quarters. Readers worry that these trends are unsustainable, and that the end result might be a cut in SYY’s dividend.
Hudson City Bancorp (HCBK)
One reader stated that he recently sold HCBK because he thought their dividend was in jeopardy of being cut. “Once I found out regulators were getting involved, I panicked and sold.”Old Republic International (ORI)
This insurance underwriter's payout ratio was cited by one reader as an unsustainable 531% (per Yahoo! Finance).
One reader expressed unease with PBI’s dividend, although no supporting data was provided. The concern probably proceeds from PBI’s business model. Many investors feel that PBI is a buggy-whip company. It is dominant in postal meters and related products, but physical mail itself is seen as a dying industry.
Please use the Comments section to nominate other companies for the Dividends in Danger series or to comment further on the companies above. Support your thesis with data and reasoning. Be specific: We want to identify particular companies whose dividends may actually be in danger. If you feel that an entire industry is in danger, please explain why and give examples of companies in the industry that are at risk. The most helpful comments will be focused, factual, and reasoned.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.