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Churchill Downs’ Dividend Safety Score Downgraded to “Borderline Safe” as Derby Will Be Held Without Fans

The pandemic has caused significant disruption for Churchill Downs' business. The firm's flagship event, the Kentucky Derby, was delayed from early May to September, hurting its horse racing operations (28% of 2019 adjusted EBITDA). Meanwhile, casinos (58%) were forced to close temporarily. And although the online gaming business (14%) has continued growing, Churchill Downs' second-quarter revenue fell more than 60% and the company operated at a loss. When we looked at the business in March, we decided to take a wait-and-see approach with the firm's Dividend Safety Score since the firm's overall financial health seemed to hinge on whether or not the Derby would take place, and what it might look like. Since Churchill Downs pays an annual dividend, usually [...]

August 24th, 2020|

Solar’s Dividend Safety Score Upgraded on Portfolio Resilience, Expected Payout Ratio Improvement

Solar Senior Capital is an externally managed business development company that invests primarily in loans of private middle market firms to generate income. The company's portfolio is valued at around $500 million and diversified across 215 borrowers in over 115 industries, with an average issuer exposure of less than 0.5% of the portfolio. No industry accounts for more than 25% of the portfolio either. Diversified financial services represents 22.5% of Solar's investments, followed by healthcare providers (18%), professional services (9.3%), insurance (8.6%), and communications equipment (5.4%). Solar has had a Very Unsafe Dividend Safety Score for years, reflecting the firm's high payout ratio and small size, as well as the generally risky nature of business development companies' operations.

August 21st, 2020|

BHP’s Results Helped by Rising Iron Ore Price But Variable Dividend Policy Muddies Income Outlook

BHP is the largest mining company in the world. The firm extracts and processes iron ore (63% of EBITDA), copper (20%), petroleum (10%), and coal (9%). Commodity businesses generally have little control over the selling price of their products and must invest heavily to secure and extract new resources. Coupled with their high fixed costs and operating leverage, firms such as BHP can experience major swings in earnings from one year to the next, making it harder for them to pay predictable dividends. In 2016, BHP acknowledged these challenges by implementing a flexible dividend policy tied to the performance of its business. Specifically, BHP targets a minimum dividend of 50% of underlying profits. The board can also return additional cash [...]

August 19th, 2020|

Analog Devices Expects to Maintain Dividend Policy Following Planned Acquisition of Maxim

In July, Analog Devices announced plans to acquire semiconductor company Maxim for more than $20 billion. Assuming the deal gains approval from regulators and shareholders, it is expected to close by the summer of 2021. From a dividend safety perspective, Analog Devices plans to maintain its existing dividend policy and will continue targeting 7% to 15% annual dividend growth. This guidance, coupled with our review of the combined company's financial health, leads us to reaffirm Analog Devices' Safe Dividend Safety Score.  From a strategic perspective, Analog Devices and Maxim are complementary businesses. Maxim designs and builds analog chips with a focus on serving the automotive and data center markets. Power management applications are a key focus area.

August 18th, 2020|
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