Dividend stocks often don’t offer explosive growth, but they do tend to offer investors stability and a dose of regular income. That’s why just about the worst thing a dividend-paying company can do is cut its payouts.
We saw this across the Great Recession when even big name companies like General Electric Co. (ticker: GE) were forced to reduce their dividends in the wake of the financial crisis. Before the meltdown, GE’s share price was around $40 in 2007 and its payout was 31 cents, but it crashed briefly to under $10 a share when its payout was cut to just 10 cents.
The damage has clearly already been done on GE. But which dividend stocks could be next, and are at risk of dividend cuts in the next 12 to 18 months?
[See: 20 Awesome Dividend Stocks for Guaranteed Income.]
Abercrombie & Fitch Co (ANF). Abercrombie & Fitch is one of those battered retail names that investors have brutalized in recent years; shares are off over 80 percent since July 2013 versus nearly 50 percent gains for the Standard & Poor’s 500 index in the same period.
There’s no secret as to why, as shoppers have avoided the apparel brand’s stores at the mall and ANF is operating at a loss. In fact, it’s not scheduled to turn a profit this fiscal year or even in 2018 despite a rash of layoffs and store closures.
That makes its 20-cent quarterly dividend all the more baffling. Abercrombie desperately needs capital to restructure amid falling revenue trends, so it’s only a matter of time before investors see that dividend slashed or eliminated.
CenturyLink (CTL). It’s rough out there for smaller telecoms, as evidenced by Frontier Communications Corp. ( FTR) which just slashed its dividend by roughly 60 percent in May. As such, it’s realistic to wonder whether peer CenturyLink will be the next to cut its payouts.
CTL stockholders have already endured one relatively recent cut in payouts, from 72.5 cents quarterly at the end of 2012 to 54 cents quarterly since 2013. But with earnings projections of about $2 per share both this fiscal year and next vs. annual dividend payouts of $2.16, the company is not on solid footing.
That’s just not sustainable, and if things don’t change the dividend will have to drop — just as it did for troubled Frontier Communications a few months back.
Barnes & Noble (BKS). In the age of Amazon.com ( AMZN), Barnes & Noble has been on the ropes for some time. But despite a decline of more than 80 percent in shares across the last decade, BKS made the bold call of reinstating a 15-cent dividend back in 2015 in order to win back Wall Street’s favor.
It didn’t work, with many investors wondering if the move was dangerous given the shaky balance sheet of the company. Shares have crashed from a high of more than $28 right before the payout resumed to the $7 range currently.
[See: 7 Dividend Stocks to Buy That Pay More Each Year.]
And with projected earnings of around 55 cents this year and dividends that will total 60 cents a share annually, it’s not hard to see why investors are skeptical the company is serious about shoring up its business in the face of e-commerce competition.
Sunoco (SUN). Life is rough right now for “downstream” energy company Sunoco, which relies heavily on retail and wholesale receipts of gasoline purchases. Weak crude oil prices are compressing margins across the supply chain, and pumping gas for motorists has never been a particularly high margin business to begin with.
As a result, Sunoco posted a massive loss last year and is barely operating above breakeven in 2017. With hefty dividends of 83 cents a share and not much in the way of profits to support those payouts, things need to correct in a hurry.
If they don’t, SUN shareholders may see their double-digit yields cut in half or worse as the company claws back capital and retrenches to adapt in the current age of low crude oil prices.
Franklin Street Properties (FSP). While not a household name, real estate investment trust Franklin Street Properties owns some very valuable and skyline-worthy structures that include space on Peachtree Street in downtown Atlanta to Broadway in Denver.
However, FSP faces challenges in both its real estate leasing and financing divisions. As a result, the company has seen flat revenue since 2014 even as other stocks have soared.
While the unique structure of a real estate investment trust demands big dividend payouts, the lack of top-line growth coupled with declining earnings and weak cash flow puts the 19 cent dividend and currently juicy 7 percent yield at risk.
[See: 10 ETFs That Pay Sky-High Dividends.]
FSP cut its dividend to 19 cents quarterly in 2008 during the financial crisis and has failed to raise it one red cent across nearly a decade since then despite big growth elsewhere on Wall Street. That says a lot about how management feels about its distributions and corporate outlook.
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5 Companies That Could Cut Their Dividends originally appeared on usnews.com
