Pace of Dividend Cuts Decelerating During 2019-Q3

Compared to the first two quarters of 2019, Political Calculations’ near real-time sampling of dividend declarations from data published by Seeking Alpha and the Wall Street Journal is showing considerably fewer dividend cut announcements.

The following chart shows where things stand nearly two-thirds of the way through the quarter to date:

Through Monday, 26 August 2019, we’ve counted a cumulative total of 27 dividend cut announcements during 2019-Q3, which compares with 40 and 41 having been announced at a similar point of time of during the earlier quarters of 2019-Q1 and 2019-Q2.

The following list of 14 U.S. firms that have cut dividends during the quarter to date includes only those that pay variable dividends from one period to the next, often as a straight percentage of their earnings.

• Sabine Royalty Trust (NYSE: SBR)
• Mesabi Trust (NYSE: MSB)
• Mesa Royalty Trust (NYSE: MTR)
• PermRock Royalty Trust (NYSE: PRT)
• Cross Timbers Royalty Tr (NYSE: CRT)
• Permianville Royalty Trust (NYSE: PVL)
• Pacific Coast Oil Trust (NYSE: ROYT)
• SandRidge Mississippian Trust II (NYSE: SDR)
• Nordic American Tankers (NYSE: NAT)
• Sturm Ruger (NYSE: RGR)
• ECA Marcellus Trust I (NYSE: ECT)
• Mesa Royalty Trust (NYSE: MTR)
• Permian Basin Royalty Trust (NYSE: PBT)
• Permianville Royalty Trust (NYSE: PVL)

All but two of these firms hail from the oil and gas producing sector of the U.S. economy, which went through a rough patch with falling oil prices in recent months (late April to mid-June 2019), which will translate into dividend cuts for these firms in subsequent months. Oil prices have risen more recently thanks to geopolitical tensions, where absent a major shock, we should see the number of these firms announcing dividend cuts either hold relatively flat or decline in upcoming months.

A bigger source of concern for investors are firms whose corporate boards set their cash dividend payouts to their shareholding owners independently of their revenues and earnings, where we have counted 13 in our 2019-Q3 sample to date, which we’ve listed below.

• Dominion Energy (NYSE: DCUD)
• Armour Residential REIT (NYSE: ARR)
• Columbia Banking System (NYSE: COLB)
• BlackRock Capital Investment (NASDAQ: BKCC)
• Och-Ziff Capital Management (NYSE: OZM)
• Falcon Minerals (NASDAQ: FLMN)
• AG Mortgage Investment Trust (REIT) (NYSE: MITT)
• Kingstone (NASDAQ: KINS)
• Entercom Communications (NYSE: ETM)
• Portman Ridge Finance (NYSE: PTMN)
• Dynex Capital (NYSE: DX)
• Briggs & Stratton (NYSE: BGG)
• Riverview Financial (OTCQX: RIVE)

Nine of these thirteen firms belong to the financial sector of the U.S. economy, in which we include Real Estate Investment Trusts. This sector of the U.S. economy has experienced distress related to the Fed’s series of interest rate hikes and its quantitative tightening policies, which they only just began to reverse at the end of July 2019.

The remaining four firms that fall in this category all come from different sectors of the U.S. economy and includes representatives from the utility, media, insurance, and manufacturing industries.

Overall, we find the near-real time sample of dividend cuts to be consistent with the U.S. economy being relatively healthy at this point, though that may change as geopolitically motivated distress from the developing global economic slowdown works its way westward around the Earth from their points of concentration in the far east. Industrial sectors to pay attention to in upcoming quarters may add the agriculture, automotive, aerospace, and manufacturing sectors to the list of firms from the oil & gas and financial sectors of the U.S. economy experiencing the kind of distress that can lead to dividend cuts.