Dividends at These Companies Could Be in Jeopardy

David Trainer of investment research firm New Constructs says the dividends at a number of companies are in jeopardy amid coronavirus-related economic uncertainty.
Author:
Publish date:

Investors love stocks that pay out quarterly dividends, but amid the economic uncertainty induced by the coronavirus pandemic, a number of prominent companies are likely to jettison those payouts, an analyst says. 

David Trainer, chief executive of the Brentwood, Tenn., investment-research firm New Constructs, says that since cash flows are at higher risk right now, companies that struggled to pay dividends before the crisis may be forced to cut them altogether.

To find companies most likely to eliminate their dividends Trainer used five criteria. 

Companies with a dividend yield greater than 4%; those with negative free cash flow over the previous 12 months, companies with cumulative five-year free cash flow less than their cumulative five-year dividend payments, companies with net debt greater than 25% of market cap; and those with neutral or worse risk/reward ratings are all candidates. 

Companies with free cash flow smaller than their dividend payments include Sinclair Broadcast Group  (SBGI) - Get Report, Invesco  (IVZ) - Get Report, Jefferies Financial  (JEF) - Get Report, Pfizer  (PFE) - Get Report, Ryder System  (R) - Get Report, MGM Resorts  (MGM) - Get Report, Delek US  (DK) - Get Report, and Noble Energy  (NBL) - Get Report.

Vacation company Vail Resorts MTN and auto parts company Dana Inc. DAN also made this list. 

In addition, "dividends from energy companies are particularly risky given the recent crash in oil prices," Trainer wrote. 

"As oil and gas firms cut capital spending and delay or close down projects, those with already low profitability are at greater risk of cutting dividends to preserve resources."

Those energy companies include Murphy Oil  (MUR) - Get Report and tanker provider Frontline  (FRO) - Get Report