Dodging Dividend Cuts

Sweet yields can bring sour consequences. Shareholders of Macquarie Infrastructure (NYSE: MIC) found that out last week, as the combination of tighter capital markets and softening operating cash flows forced management to cut dividends for 2018 by roughly 30 percent.

The warning signs were there, most notably Macquarie shares’ pre-cut double-digit yield. The stock’s immediate plunge of 40 percent plus on the news, however, shows the action surprised many investors. It also highlights what’s become a most unforgiving market for dividend-paying stocks that disappoint.

This won’t be the last shock to the yield-seeking world in the maturity phase of this bull market, which began in March 2009. My Conrad’s Utility Investor “Endangered Dividends List” unmasks some two-dozen companies with high but unsustainable payouts.

Don’t expect investors to be merciful when these underperformers succumb to the inevitable. At a time with many companies are passing through the benefits of lower corporate tax rates as dividend increases, even slowing dividend boosts can trigger selling.