- At their most recent investor update, FTR’s management indicated that "…future free cash flow dividend coverage should be positively impacted by further synergies, revenue traction, and completion of broadband expansion in 2013."
- The Verizon integration appears to be proceeding quite well, and therefore it appears that future cash flow should protect the recently reduced dividend.
- The acquisition doubled CTL's size, just as the acquisition of Embarq had before it, and expansion through acquisition seems to be management’s goal.
- Based on CTL's recent earnings conference call, the chance of a cut seems tiny. However, CTL issued a boatload of new shares last quarter. So based on the new share count, the dividend looks like it's running over $1.7B, which already puts it at more than 50% of management’s estimate of $3B in FCF. So while I don't see the cut danger, I don't see much room for an increase either.
- The increase in share count coincided with the closing of the Qwest acquisition.
- The Qwest merger has the potential to actually increase cash flow generation. Therefore I continue to believe the current dividend is protected, but I still don't see a lot of growth overall.
- Without acquisitions, CTL does seem like a slow grower, almost a pure income play. The other CTL metric I don’t like is the ROE, about 5% or so; contrast that with VZ and AT&T (NYSE:T), whose ROEs run about 16% to 19% or so. With a such a low ROE, CTL probably can’t grow much except via acquisitions, borrowing, share offerings, etc. Their acquisition integration needs to stay on track because there doesn’t seem to be much of a growth engine without that.
- I don't believe the COP breakup forms two new companies. Rather, the reputation of the company is like an asset of the company and goes with each of the "children." The children then form their own reputation as time passes.
- I still believe the cash flows are there, but like others I need to see some time pass after the split. Nevertheless, I feel the overall income generation via dividends or a combination from both companies remain intact, and could possibly mean that the parts pay dividends greater than the original whole.
- COP is in my dividend growth area, and I'm in the "wait and see" mindset to see what shakes out. If neither of the new companies both keep and raise the existing dividend, they'll be dropped and replaced, probably with CVX.
- VIVO takes great pride in their outstanding dividend growth record, but they are slipping. Dividend boosts are based on management's estimated earnings for each coming fiscal year. They badly overestimated at the beginning of the year so earnings missed, pushing the payout above their 85% policy ceiling. Management then revised estimates downward, missed again in the latest quarter, then revised downward again. I think it's still too early to say VIVO will cut, but I would not be surprised to see a policy change, which could at least end their streak (and maybe prompt a cut). Estimated earnings aren't making it as a policy framework.
- NOK still faces headwinds, but after their recent dividend cuts and some improvement in cash flows, the current dividend could be maintained. However, the company still faces enormous headwinds therefore the risk may be higher than the potential reward.
- Since the last article, ORI's mortgage insurance unit has had its eligibility revoked by Fannie (OTCQB:FNMA) and Freddie (OTCQB:FMCC), and is therefore in runoff. One of the reasons it seemingly had its eligibility revoked is it was out of regulator compliance but ORI would not contribute capital. Management claims that under runoff the MI unit should have enough capital on its own to pay all claims, but based on my analysis I think it is unlikely. Thus, with ORI, the sustainability of the dividend is going to come down to whether ORI can successfully exercise its "put option" on the MI unit and refuse to contribute capital to honor claims, or whether they will somehow be compelled to contribute capital.
- I see a lot of risk in ORI’s deteriorating operating results, but their 30-year dividend streak appears to be a badge of honor to management. Also, there appears to be some slight improvement in the general business prospects going into 2012, but the risk is very high in my opinion.
- Harsco (NYSE:HSC) attracted no new comments last month, and it will be dropped next month unless further discussion appears.
- Each month, David Fish produces an article on “overdue” increases, covering companies that have not increased their dividend in more than a year, a possible sign that their streaks of increases are in danger. See “31 'Overdue' Dividend Increases: Streaks In Jeopardy?”
- On Bristol-Myers Squibb (NYSE:BMY): “Can This High Yielding Healthcare Stock Sustain Its Dividend?”
- On France Telecom (FTE): “France Telecom: Very Undervalued Or Is The Dividend At Risk?”
- On Telefonica (NYSE:TEF): “Telefonica's Debt Endangers Its Dividend”and “Telefonica: Debt And Dividend Appear To Be Sustainable”
- AAII “Investor Professor” article: “Dividend Safety Signs and Warning Flags.” You must be a registered member of AAII to read the full article. The content is pretty elementary, but it never hurts to be reminded of the blocking and tackling fundamentals.
Please use the Comments section to discuss the companies mentioned in this article or to nominate other companies for the Dividends in Danger series.The best comments are focused, factual, specific, and reasoned.
Disclosure: I am long TEF.
Disclaimer: Always perform your own due diligence before making any investment decisions. Not all information for each company has been verified by the author.