Endangered Dividends

We’re barely three months in. But already, 80 Utility Report Card companies have announced dividend increases for 2023. I expect many others to join them in the next few months.

Fortum OYJ (Finland: FORTUM, OTC: FOJCF) is breaking its annual dividend for calendar 2023 into two semi-annual payments for April and October. The total of 91 Euro cents is an effective 20 percent cut from 2022’s annual payment of EUR1.14 per share. Management telegraphed a reduction late last year, when the largesse of the German government allowed it to escape the meltdown of Uniper SE. The company ultimately exited the power generation company and energy retailer it had spent years pursuing with a loss of roughly EUR6 billion.

Two Utility Report Card companies have cut dividends so far in 2023. Highlighted in the January 12 update “Algonquin Re-Sets: What’s Next,” combination utility and renewable energy producer Algonquin Power & Utilities’ (TSX: AQN, NYSE: AQN) is cutting its common stock dividend by -40 percent to 10.85 cents per share.

We won’t have to wait long to hear Algonquin Power & Utilities’ (TSX: AQN, NYSE: AQN) plan for its dividend this year. The company’s Investor Call on January 12 will likely include revised guidance along with plans to corral debt and the Kentucky Power acquisition from American Electric Power (NYSE: AEP)—now blocked by the Federal Energy Regulatory Commission. Shares are pricing in a dividend cut of at least one-third. What management decides will likely depend on how fast it wants to reduce roughly $3.4 billion in variable rate debt, and whether it walks away from Kentucky Power.

The Endangered Dividends List has two new members this month: Algonquin Power & Utilities (TSX: AQN, NYSE: AQN) and Vodafone Group (London: VOD, NYSE: VOD).

Wireline communications company Lumen Technologies (NYSE: LUMN) eliminated its quarterly cash dividend this month. That brings total year-to-date cuts in the Utility Report Card coverage universe to nine.

This year is shaping up as a banner one for dividend increases in the Utility Report Card coverage universe. So far, 103 of the 179 companies tracked have raised their payouts at least once. And I count roughly three-dozen more that will almost certainly deliver a boost between now and December 31.

Since the start of 2022, the US Dollar Index is up about 15 percent to its highest level since 2001. That’s the result of determined inflation-fighting by the US Federal Reserve in the context of a still relatively strong US economy.

There are growing signs of a deeper recession ahead. And the US Federal Reserve is unrelenting pushing borrowing costs higher to bring down inflation to its long-term target of 2 percent.

Recession may not be inevitable for the US economy this year. But with the US Federal Reserve doing its best Paul Volcker impression, it’s well past time for investors to prepare against the worst.