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JPMorgan Positioned for Dividend Increase This Summer as Capital Restrictions Ease

In response to economic uncertainty created by the pandemic, the Federal Reserve last year imposed additional capital preservation measures on America's largest banks. Banks with more than $100 billion in assets – including JPMorgan – were restricted from repurchasing shares until early 2021, and their dividends are still not allowed to be increased. Total buybacks and dividends cannot exceed net income generated over the past year either. These restrictions helped ensure that the country's most important banks maintained adequate capital reserves to survive a potentially severe recession and continue providing loans to struggling customers. With the U.S. economy recovering, the Fed on March 25 announced plans to end its capital distribution restrictions in July for most firms. By then the Fed will [...]

April 8th, 2021|

AT&T Can Sustain Dividend But Delayed Deleveraging Reduces Margin for Error

AT&T purchased $27.4 billion of spectrum at the Federal Communications Commission's recent record-setting auction and plans to reduce its leverage ratio to 2.5x in 2024, according to the firm's March 12 business update.Both of these figures missed our expectations. In the analysis we shared in February, we assumed AT&T would spend $20 billion at the spectrum auction and see its leverage ratio fall below 2.3x in 2023 (and even lower in 2024). We said we would consider downgrading AT&T's Dividend Safety Score if its spectrum costs were greater than we anticipated and management showed a willingness to run the business with higher leverage in the short term. With both of those factors materializing and reducing the company's margin for error, we are [...]

March 23rd, 2021|

PPL Seals Deal to Sell UK Assets, Buy a US Utility; Dividend Reduction Expected Within 12 Months

PPL since August has been shopping its U.K. utility operations, which generated 53% of the firm's adjusted earnings last year. On Thursday, management finally found a buyer. PPL will sell its U.K. business to National Grid in a transaction valued at $19.4 billion. PPL shares jumped 5% on the news as the assets achieved a higher value than expected; Reuters previously suggested the business could fetch a valuation of up to around $16 billion. Management expects net cash proceeds of $10.2 billion once the deal closes within four months. PPL will use $3.8 billion of these funds to acquire Narragansett Electric, a regulated utility in Rhode Island owned by National Grid. Following these transactions, PPL will consist of regulated utilities across Pennsylvania, Kentucky, [...]

March 18th, 2021|

Excess Industry Capacity Not Enough to Disrupt Enterprise’s Distribution

We have been watching Enterprise Products Partners closely in light of the substantial excess capacity in the midstream industry. Service providers' forecasts of production growth have turned out to be overly optimistic, resulting in too much infrastructure development that has been further accentuated by the pandemic-driven decline in domestic energy production. Source: Enterprise Products Partners, Investor Presentation This environment could pressure midstream service providers' future cash flow as contracts expire and potentially renew at lower rates and reduced volume commitments. Enterprise hosted an analyst day earlier this month, providing the most recent look at where the midstream industry might be headed. The meeting highlighted improving production rates and increased capacity utilization.Oil and gas production has bounced off pandemic lows while natural gas [...]

March 12th, 2021|
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