5 Signs Your Dividend Stocks Might Be In Trouble презентация

Trouble

invest
While this may be true for many stocks, there are many red flags to be aware of

per share and pays dividends of $0.40 annually, its payout ratio would be 40%

August 14, 2015

company to sustain its dividend.
In general, I like to invest in companies with payout ratios below 50%
Be particularly wary of companies whose payout ratios are close to or more than 100%
(Note: certain stocks, like REITs, are required to pay out the majority of their earnings, so a high payout ratio isn’t necessarily bad for these companies.)

August 14, 2015

some popular, healthy dividend stocks (2014 – full year)

August 14, 2015

red flag
The company earned $3.02 per share in 2014, and paid out $2.65 per share (88% payout ratio)
Earnings are expected to drop to $2.31 in 2015 and $2.57 in 2016, which means that the company will either have to cut its dividend or pay out more than 100% of its earnings

August 14, 2015

A dangerous payout ratio…

increase dramatically, it should be a red flag for dividend investors
High debt payments can eat into a company’s ability to pay dividends and force cuts

Also, companies whose business models involve high uses of debt (leverage) to achieve profitability tend to be volatile dividend stocks
Mortgage REITs are a good example

August 14, 2015

ratio
Many analysts consider a ratio of 0.3 or lower to be extremely healthy
However, it’s important to compare the debt-to-capital levels of companies in the same industry, as well as to monitor your stocks’ ratios over time

August 14, 2015

these companies have “unhealthy” debt levels, this information lets us know that IBM relies more on debt to finance its operations than other tech companies

August 14, 2015

Much of IBM’s debt is “global financing debt”, which is actually backed by receivables
Corporate (non-financing) debt actually declined 26% over the past year
While this is just one case, it’s important to look for extenuating circumstances when it comes to high debt levels

flags for new investors

August 14, 2015

signal that dividend cuts are on the way
For example, the energy and commodities industries are weak right now

The companies that have already chopped their dividends include:
Freeport McMoRan
Chesapeake Energy
LINN Energy
Transocean

August 14, 2015

dividend cut, it is usually a strong indicator of something fundamentally wrong with the company
Or, if the company has historically increased its payout every year, not doing so all of a sudden can be a sign of trouble

Companies cut dividends for a variety of reasons including
Falling revenue
Increasing expenses
Decision to reinvest more capital in the business

August 14, 2015

of cases, it is certainly cause for further investigation
For example, many energy companies have slashed dividends in the wake of plunging oil prices (bad news)

August 14, 2015

and choose to reduce the dividend rather than take on more debt
Wynn Resorts (WYNN) is a good example of this, in my opinion
In April, Wynn cut its quarterly dividend from $1.50 to $0.50 per share, on the heels of declining revenue in Macau and slow growth in Las Vegas.
The company is investing $5 billion in new resorts over the next few years, and Steve Wynn refuses to use debt financing to pay a dividend.
Instead, the company will focus its cash on creating long-term value for its shareholders.

August 14, 2015

it may have trouble increasing its dividend in the future, without making its payout ratio too high
Great dividend stocks grow their revenue year after year no matter what the economy is doing -- like Wal-Mart during the recession and after

August 14, 2015

flag that something is wrong
Profits can fall, even if revenue continues to rise

Potential reasons for lower profitability include
Litigation expenses (like most of the banking industry over the past several years)
Increased regulatory costs
Poor management of operating expenses

August 14, 2015

HERE TO READ NOW