Endangered Dividends

Elevated debt has claimed another dividend: Communications infrastructure operator Crown Castle (NYSE: CCI) announced last month it will cut its quarterly dividend from $1.565 to $1.0625 per share, starting with the June payment. The -32 percent “re-set” reflects the earnings loss from the sale of real estate investment trust Crown Castle’s fiber broadband and “small cell” operations in two separate deals for “aggregate proceeds” of $8.5 billion. Management expects to use $3 billion of that to fund a share buyback plan, the rest to pay down credit lines and make a dent on $23 billion plus of long-term debt.

Elevated debt: That’s historically been the greatest threat to utility and essential services company dividends. And it’s the case in 2025 as well, with the Federal Reserve holding interest rates higher for longer and concerns about global economic growth rising. Regulated utilities can safely carry much higher levels of debt than other industries. That’s because the revenue is backed by monopolies providing essential services at regulated rates. Other Utility Report Card coverage universe companies protect revenue from economic ups and downs with long-term contracts.

XPLR Infrastructure (NYSE: XIFR), formerly known as NextEra Energy Partners, will not pay a dividend for the foreseeable future. That’s the chief result of the company’s strategic review announced in late January. I highlighted the rationale for the move in the January 28 Alert: “More Earnings, XPLR Infrastructure and Deepseek AI Fallout,” also posted on the Conrad’s Utility Investor website.

Last year, seven companies in the Conrad’s Utility Investor coverage universe cut or eliminated their dividends. They were: Algonquin Power & Utilities (TSX: AQN, NYSE: AQN), Innergex Renewable Energy (TSX: INE, OTC: INGXF), SSE Plc (London: SSE, OTC: SSEZY), Superior Plus (TSX: SPB, OTC: SUUIF), Telephone and Data Systems (NYSE: TDS), Uniti Group (NSDQ: UNIT) and Vodafone Plc (London: VOD, NYSE: VOD).

Nothing alarms income investors more than fear of dividend cuts. So accusing a trusted company of nearing one is a time-tested way to get attention—whether you’re a Wall Street analyst or a Seeking Alpha blogger. BCE Inc (TSX: BCE, NYSE: BCE) and Eversource Energy (NYSE: ES) are recent targets of dividend cut speculation. But unlike the trio of companies currently on the Endangered Dividends List, actual risk is far less than it may first appear.

Just weeks after raising its final dividend for FY2024 (end June 30), Spark New Zealand Ltd (NZ: SPK, OTC: SPKKY) announced a -9.1 percent cut in its FY2025 dividend. Last month, I noted management’s dour forecast for FY2025. And it’s now doubled down on that outlook, cutting EBITDA guidance to a range of NZD1.12 to NZD1.18 billion from the previous NZD1.17 to NZD1.22 billion. The telecom also cut its planned capital expenditures to NZD415 to NZD435 million, versus previous guidance for NZD460 to NZD480 million.

During the first nine months of 2024, 116 essential services companies tracked in the Utility Report Card raised dividends at least once. Eight reduced or eliminated their payouts, disproportionately from the telecom sector. Telephone and Data Systems (NYSE: TDS) cut its payout -79 percent. That reflects the proposed sale of wireless operations of its US Cellular Corp (NYSE: USM) affiliate to T-Mobile US (NSDQ: TMUS) for $4.4 billion.

Regulated utilities aren’t immune from stumbles. And Algonquin Power & Utilities (TSX: AQN, NYSE: AQN) negatively surprised me in early August, with its second dividend cut in 18 months. When a company reduces guidance multiple times in succession, it’s clear management did not fully anticipate business headwinds. And usually the best course for investors is to move on.

Uniti Group (NSDQ: UNIT) now expects to close its proposed merger with privately held Windstream Holdings in “second half 2025.” At that time, management has said it will drop its REIT structure and eliminate its dividend. This implies the company will make at least four more payment at the current rate of 15 cents per share—one-year income return of almost 15 percent. But lest anyone be tempted, consider the following.

Most companies view dividend cuts only as a last resort. That’s for good reason. Investors rightly view slashing payouts as management breaking faith, even when there are very good reasons. Just ask Kinder Morgan Inc (NYSE: KMI) founder and largest shareholder Richard Kinder. His stock sells for half what it did in late 2015 before the midstream company cut dividends by 75 percent, despite a 130 percent increase since.