Endangered Dividends

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.

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.

Dominion Energy (NYSE: D) will drive down its payout ratio by holding dividends level the next few years. And other companies will do the same by sharply reducing the size of increases—and holding in more cash to self-fund growth. So far in 2024, however, just two companies have announced dividend cuts versus several dozen increases. The first was Orsted A/S (Denmark: ORSTED, OTC: DNNGY), a widely expected move brought on by vast cost overruns from building offshore wind projects. Since then, however, Orsted received a much needed shot in the arm, as its Sunrise Wind project won a new contract with New York state. The stock’s a buy up to 25 for patient, aggressive investors who don’t need the income.