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Cisco Braces for a Longer Downturn But Continues Offering a Safe Dividend

Shares of Cisco fell more than 11% on Thursday following the company's latest earnings release. Sales declined 9% last quarter, slightly better than expected, but management is not seeing a V-shaped recovery. CEO Chuck Robbins said the environment feels "very much like it felt 90 days ago" and provided guidance for a somewhat steeper revenue decline of 9% to 11% in the firm's current fiscal quarter, which runs through October. Cisco has spent the last few years shifting its business to emphasize more recurring software and services offerings, which accounted for 51% of revenue in fiscal 2020. However, more work is needed to better insulate the firm from cyclical swings in IT spending. Cisco's Infrastructure Platforms division (55% of sales), which [...]

August 14th, 2020|

Qualcomm Wins Appeal, Ending Legal Challenges; Dividend Safety Score Upgraded to “Safe”

On Tuesday, a federal appeals court issued Qualcomm a favorable ruling, reversing a May 2019 victory for the U.S. Federal Trade Commission which had accused the chipmaker of charging excessive royalty rates for its patents. The 2019 ruling threatened to disrupt the lucrative licensing practices that historically generated over 70% of the company's operating profits. As we discussed in December 2019, an unfavorable ruling had potential to harm Qualcomm's ability to pay dividends and invest in future technologies such as 5G. This week's news officially removes a worst-case outcome for Qualcomm's core licensing business model, stabilizing the firm's cash flow outlook going forward. In addition to its legal victory, Qualcomm in July resolved its royalty rate dispute with Huawei, the largest seller of smartphones in the world, [...]

August 12th, 2020|

PPL Stock Jumps on Plans to Shop U.K. Business; Dividend Safety Score Downgraded to “Borderline Safe”

PPL's stock rallied 5% today after the firm announced plans to initiate a process to sell its U.K. operations. PPL's U.K. utility business generated 52% of the company's 2019 segment earnings but faced an uncertain longer-term outlook. The current regulatory framework driving PPL's U.K. electricity distribution business ends in 2023, and Britain's energy regulators appear eager to reduce allowed returns at that time. This overhang, coupled with Brexit-related political instability and currency volatility, weighed on PPL's stock performance in recent years. Since 2017, PPL has seen its P/E ratio fall from an average near 16 to about 11 today. For context, the utility sector's average P/E ratio is about 17.5. Management believes they can create immediate shareholder value by fetching a sale price for [...]

August 10th, 2020|

UGI’s Dividend Continues Looking Safe Despite Some Softness in Propane Markets

UGI Corporation has a dividend yield nearly twice its historical five-year average.  Naturally, this is leading some investors to question the safety of UGI’s dividend. So, what’s weighing on the stock?  The biggest concern appears to be the timing of increased leverage shortly before an economic crisis brought upon by an unexpected global pandemic. In 2019 UGI completed a merger with AmeriGas, a propane distribution company, and acquired the Columbia Midstream Group, a midstream services business.   These deals totaled over $3.7 billion in value.  For context, UGI’s market cap is about $7 billion. This spending led to a significant jump in leverage by year-end.  UGI’s debt had reached its highest level in the past decade.

August 7th, 2020|
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