Walt Disney Companies (DIS) Suspends Dividends

I just learned that Disney (DIS) is suspending dividends for the first half of 2020. (Source: CNBC) The quarterly earnings release didn't look good, which is perhaps why the dividend was suspended - the company cannot afford it in the current environment. As a result, Disney is going to lose its status of a dividend achiever. It had raised dividends for 10 years in a row.

Walt Disney Companies would not be eligible for inclusion in the dividend achievers list until some time in 2030.

This was a surprise for me. The company had kept dividends unchanged in December, which was a surprising move. The other surprising move was when Iger decided to step down all of a sudden. After the company stopped raising dividends, I stopped adding to the stock per my risk management guidelines.

I will stick to my plan, and sell the stock tomorrow, after the market opens.  This is per my risk management rules. I am going to think about what to do with the cash from the sale. Apparently the moat was not wide enough to get Disney through a global pandemic.

Check my analysis of Walt Disney Companies (DIS) for more information about the company. I last analyzed this former dividend achiever in 2018.

This was my second dividend suspension this year, after TJX Companies (TJX) suspended dividends. I also had a dividend cut this week, when Royal Dutch Shell (RDS.B) decided to cut dividends. All other oil majors are keeping theirs unchanged ( so far).

So far, the number of dividend increases surpasses the number of dividend cuts and suspensions by a large factor. However, the companies cutting or suspending dividends are no longer just those that are cyclical, and usually cut in a recession.

I will consider Disney again, at the right valuation, once it re-establishes dividends and starts growing them.


Relevant Articles:

- Disney (DIS) Dividend Stock Analysis
- Risk Management
- Disney: A Wide-Moat Stock To Hold Forever
- Warren Buffett’s Eight Billion Dollar Mistake

Two Dividend Growth Stocks Rewarding Shareholders With A Raise

I review the list of dividend increases as part of my monitoring process. I find it helpful to evaluate companies with a long streak of annual dividend increases of at least ten years. The process of checking the list of dividend increases every week helps me identify hidden dividend gems for further research. This process also helps me to review existing holdings, and update my research file for them. This is helpful whenever I have money to invest, since a recent dividend action is one of the inputs I use to establish whether I want to buy a stock.

During the past week, there were several companies that raised dividends to shareholders. I am mentioning the ones with at least a ten year streak of annual dividend increases in the article below:

International Business Machines Corporation (IBM) operates as an integrated solutions and services company worldwide.

The company hiked its quarterly dividend by a penny to $1.63/share. This marked the 25th consecutive annual dividend increase for this newly minted dividend aristocrat. During the past decade, Big Blue has managed to hike distributions at an annualized rate of 11.60%. The rate of increases is going to decelerate due to lack of earnings growth and revenue growth.

Between 2010 and 2019, earnings per share went from $11.52 to $10.56. The estimates for 2020 point to $11.23/share, but those should be taken with a grain of salt, especially this year.

The stock looks cheap at 10.85 times forward earnings, yields 5.35% and has a forward payout ratio of 58%. Without growth in earnings per share, future dividend growth will be limited to expanding the payout ratio. As a result, I do not view IBM as a buy today.

American Water Works Company, Inc.(AWK), provides water and wastewater services in the United States.

The company raised its quarterly dividend by 10% to 55 cents/share. This marked the 12th year of consecutive annual dividend increases for this dividend achiever. Over the past decade, the company has managed to increase distributions at an annualized rate of 9.10%.

The growth in dividends was supported by strong growth in earnings per share. The company earned $1.53/share in 2010 and managed to continue growing those earnings to $3.43/share in 2019.

The company is expected to generate $3.85/share in 2020. Again, take forward earnings estimates for 2020 with a huge grain of salt, although in the case of a water utility they may be closer than for a company like IBM.

The stock looks overvalued at 31 times forward earnings, yields 1.85%, and has a forward payout ratio of 57%. It may be worth it for me to take a look on dips below $77/share.

Relevant Articles:

- Dividend Achievers Offer Income Growth and Capital Appreciation Potential
- The Future for Dividend Investors
- Stagnant earnings create a risky environment for dividend investors
- What Attracted Warren Buffett to IBM?
- Seven Dividend Growth Stocks In The News

Royal Dutch Shell Cuts Dividends For The First Time Since World War II

I woke up to the news that Royal Dutch Shell (RDS.A) (RDS.B) has cut dividends for the first time since World War 2. The company slashed its quarterly dividend on its shares traded on NYSE from 94 cents/share to 32 cents/share. The turmoil in energy markets, coupled with a glut of oil and a shortage of storage amidst an unprecedented collapse in demand are a sure formula for dividend cuts.

This was an interesting decision, since BP (BP), Exxon Mobil (XOM) and Chevron (CVX) kept dividends unchanged in their most recent press releases. Actually, Chevron raised dividends three months ago, but that was before the recent turmoil in the energy markets.

The last time the group didn’t pay cash dividends was in World War Two, and the last time it cut them - as opposed to a temporary suspension - was during the Great Depression, according to Bernstein.

The last time I bought shares of Royal Dutch Shell was about a decade ago, when it had a track record of annual dividend increases. I also reinvested money from the sale of BP shares into Royal Dutch Shell shares. The company froze dividends in 2010, and by 2011 had lost its track record for consecutive annual dividend increases. 

Since I did not reinvest dividends automatically, and since I stop adding to a position after dividends are kept unchanged, I have not added to the stock in quite some time. As a result, it is small position for me, given the fact that I add to my portfolios every single month, and have done that for almost a decade since last adding to Royal Dutch Shell. This process is outlined in this article on risk management procedures that I follow.

Royal Dutch Shell did increase dividends in 2012, 2013 and 2014, but then kept the dividend unchanged or the next six years.

As part of my risk management process, I sell after a dividend cut. This situation is no different.

The most fascinating fact is that over the past decade, Royal Dutch Shell has distributed $36.32/share in dividends to shareholders. If you bought the stock at $50/share a decade, you recovered over 70% of your initial investment from dividends alone. If you bought at $60 a decade ago, you recovered 60% of your initial investment from dividends alone. Of course, if you held on to it for longer, you would have recovered your whole original purchase price from dividends alone. This is why I believe that dividends represent both a return on investment and a return of investment.

Relevant Articles:

- Royal Dutch Shell – An Undiscovered Dividend Gem
- Are Energy Stock Values Today a Once in a Lifetime Opportunity?

- What Dividend Investors Can Learn From Human Resource Departments?

- Dividend Growth: The Risk of Being Cocky

Crown Castle (CCI) - A Dependable REIT for Income

Crown Castle (CCI) owns, operates and leases more than 40,000 cell towers and approximately 80,000 route miles of fiber supporting small cells and fiber solutions across every major U.S. market. This nationwide portfolio of communications infrastructure connects cities and communities to essential data, technology and wireless service bringing information, ideas and innovations to the people and businesses that need them.

Crown Castle only increased dividends for 5 years in a row. Crown Castle initiated its first dividend in 2014, after converting to a Real Estate Investment Trust.

Crown Castle has managed to grow it consistently since then. The first dividend was 35 cents/share, but was increased to 82 cents/share by the end of 2014. This set the precedent for dividend increases to occur in the fourth quarter of each year. The last dividend increase occurred in October 2019, when the quarterly dividend was increased by 6.70% to $1.20/share.

Between 2014 and 2019, the REIT managed to grow adjusted funds from operations (AFFO) from $3.97/share to $5.69/share. The REIT is expecting to generate $6.12/share in 2020.

I first learned about Crown, American Towers (AMT) and SBA Communications (SBAC) through my regular business interactions in the telecom industry several years ago. I like the business model and fundamentals behind the industry. I like Crown for its dividend, which I believe is well covered and has the ability to grow over time.

Crown offers cell towers under long-term agreements with telecom carriers. A typical tower leases has an initial term of 20 years, which then gets renewed every five years. Those leases cannot be broken easily (perhaps a bankruptcy of a carrier is the only way out from the contractual clauses). There are contractual escalation amounts each year, which ensures growth in profits over time.  There is a considerable amount of red tape in establishing a cell site location, and navigating local laws and regulations. Needless to say, it is not easy to set up towers just like that. It would be difficult for a competitor to set up a tower next door.

Companies earn their money by signing up several customers to its towers. The return on investment increases from low single digit percentages for one customer to a double-digit percentage with three or more clients. Therefore, having multiple carriers is good for Crown Castle.

Growth comes from rent escalations, offset by non-renewals. Growth also comes from acquisitions as well.

The risk comes from consolidations with major clients – when the number of potential clients decreases over time, the potential profits are limited. The merger between Sprint and T-Mobile could impact cell tower companies like Crown Castle. However, while Sprint and T-Mobile account for a total of 38% of CCI’s revenues, not all is lost since there is overlap in just 5% of CCI’s towers. In other words, the company would most likely lose a little over 5% of revenues if Sprint & T-Mobile were to merge and shut down overlapping sites right away. In reality, sites can be decommissioned but they would still have to pay until the end of the contractual term. The weighted average remaining lease term on that 5% is five to seven years.

The FFO payout has remained around 80% since 2015. The company converted to a REIT in 2014, after which it immediately ramped up its dividend payout. I find it to be sustainable, and well covered from the dependable rent streams under long-term contracts with escalation clauses.

The REIT is overvalued today. I want to buy Crown Castle sells for 20 times forward FFO and a dividend yield of 4% or better. This translates into an entry price in the $120 - $125/share range, or lower.

Relevant Articles:

- Five Things to Look For in a Real Estate Investment Trust

- Three REITs Delivering Fresh Dividend Growth To Shareholders

- A Change of heart on REITs and MLPs
- Four High Yield REITs for current income

Seven Dividend Growth Stocks In The News

As part of my monitoring process, I review the list of dividend increases. I usually focus on the dividend increases for companies with a dividend streak longer than ten years in a row.

There were several notable dividend increases over the past week:

The Southern Company (SO), engages in the generation, transmission, and distribution of electricity. It operates in four segments: Gas Distribution Operations, Gas Pipeline Investments, Wholesale Gas Services, and Gas Marketing Services.

Southern Company raised its quarterly dividend by 3.20% to 64 cents/share. This marks the 19th consecutive year that that Southern has raised the dividend on its common stock.

During the past decade this dividend achiever managed to increase dividends at an annualized rate of 3.60%.
Southern Company managed to grow earnings from $2.36/share in 2010 to $4.50/share in 2019.
The company is expected to earn $3.15/share.

The stock yields 4.40% and sells at 18.30 times forward earnings.

The Travelers Companies, Inc. (TRV) provides a range of commercial and personal property, and casualty insurance products and services to businesses, government units, associations, and individuals in the United states and internationally. The company operates through three segments: Business Insurance, Bond & Specialty Insurance, and Personal Insurance.

Traveler's hiked its quarterly dividends by 4% to 85 cents/share. This marked the 16th consecutive year of annual dividend increases for this dividend achiever

During the past decade the company managed to increase dividends at an annualized rate of 10.10%.
Travelers managed to grow earnings from $6.62/share in 2010 to $9.92/share in 2019. The company is expected to earn $9.33/share.

The stock yields 3.40% and sells at 10.80 times forward earnings. Check my analysis of Travelers Companies for more information about the company.

UGI Corporation (UGI) distributes, stores, transports, and markets energy products and related services in the United States and internationally. The company operates through four segments: AmeriGas Propane, UGI International, Midstream & Marketing, and UGI Utilities.

UGI Corporation hiked quarterly dividends by 1.50% to 33 cents/share. This marked the 33rd consecutive year of annual dividend increases for this dividend champion.

During the past decade the company managed to increase dividends at an annualized rate of 8.10%.
UGI Corporation has managed to grow earnings from $1.57/share in 2010 to an adjusted $2.28/share in 2019.

The company is expected to earn $2.58/share.

The stock yields 4.70% and sells at 10.95 times forward earnings.

People's United Financial, Inc. (PBCT) operates as the bank holding company for People's United Bank, National Association that provides commercial banking, retail banking, and wealth management services to individual, corporate, and municipal customers. The company operates in two segments, Commercial Banking and Retail Banking.

The bank hiked its quarterly dividend by 1.40% to 18 cents/share. This was the 27th consecutive annual dividend increase for this dividend aristocrat. During the past decade, the company has managed to increase dividends at an annualized rate of 1.50%/year.

The company managed to grow earnings from 30 cents/share in 2009 to $1.27/share in 2019. However, the low earnings per share in 2009 were as a result of an earnings recession that had lasted since EPS hit a high of 81 cents/share in 1999. They didn't exceed those earnings until 2014.

The company is expected to earn $1.01/share in 2020, but as with all other estimates for this year, take them with a huge grain of salt.

The stock looks attractively valued at 11.80 times forward earnings and the dividend yield looks high at 6.05%.

There was another company that announced its expectations to raise dividends in September. The company is Carlisle Companies (CSL). They did not discuss the amount of the dividend after the hike, but it was a breath of fresh air amidst a sea of turmoil. During the past decade the company managed to increase dividends at an annualized rate of 11.10%. Carlisle still has pretty ambitious goals for tis 2025 Vision – it plans to earn $15/share in 5 years. I wish them success, but they have some tough economic pressures to overcome. For reference, the company earned $8.20/share in 2019 and analysts are now expecting earnings of $6.14/share.

There was also one notable dividend from the list of dividend champions.

Meredith (MDP) which was a dividend champion, suspended dividends last week. This ended a 27 year streak of annual dividend increases. The ten year dividend growth was 9.80%/year annualized.
Just 2 months ago they raised dividends 3.5% to 59.50 cents/share.

CEO's statement from Feb 3rd: "One of the hallmarks of Meredith's business is the very strog and durable cash flow that our portfolio of top media brands generates. We are proud to continue delivering on our goal of consistent annual dividend growth as part of our strategy"

During the last recession in 2008/9, Gannett cut dividends. Newspaper publishing used to be recession resistant, until the internet ate its lunch in the 2000s. I didn’t own the stock, but if I did, I would have sold it.

Anyways, it looks like analysts are expecting that Meredith would earn $5.24/share, which makes it seem like the stock is selling at roughly 2 times earnings. Meredith Corp grew earnings from $2.28/share in 2010 to $4.16/share in 2017. In 2018, earnings fell due to one-time events to $1.47/share. In 2019 it reported a loss of 71 cents/share due to one-time events. I looked into the stock in 2018 and 2019, but for some lucky reason never bought it. It was probably because there were too many one-time items to keep track of, and the fact that traditional print media is in decline. I am skeptical that this company will earn $5.24/share in an environment where companies are slashing advertising budgets.

I also saw a very confusing dividend announcement from 1st Source Financial (SRCE). (Source) I am keeping it in a category of its own. Perhaps I should call it a dividend cut increase? Or a dividend increase cut?

They declared a dividend of 28 cents/share, which is 3.45% lower from the previous two quarterly dividend payments of 29 cents/share. They had last raised dividends from 27 to 29 cents/share in October 2019.

The dividend is 3.70% higher from the dividend paid during the same time last year however.
They sent three dividend payments of 27 cents/share and one dividend payments of 29 cents/share in 2019 for a total of $1.10/share.

They paid 29 cents/share in 2020. If they pay three dividends at 28 cents/share, it comes out to a total of $1.13/share for 2020.

The press release reads like they increased dividends, when in fact they cut the dividend. If they maintain it at 28 cents/share however, the company will be able to still keep streak alive. I don’t own the stock, but I never the less find this very confusing.

It does seem like they have managed to grow earnings from $1.10/share in 2010 to $3.57/share in 2019. During the Global Financial Crisis, earnings nosedived from $1.56/share in 2006 to 72 cents/share in 2009.

I also expect to hear from the following companies next week:

Ameriprise (AMP)
IBM (IBM)
Apple (AAPL)
Exxon-Mobil (XOM) - I don't think they can afford their dividend, but they will most likely skip a raise, and keep it unchanged
Simon Property Group (SPG) – I would not be surprised if they cut dividends.

Relevant Articles:

- Dividend Momentum from Five Dividend Growth Stocks
- Nineteen Dividend Growth Stocks For Further Research
- Lindsay Corporation Hikes Dividends
- 14 Dividend Growth Stocks I Bought Last Month