Compass Minerals has had a speculative Dividend Safety Score since 2017, reflecting the firm's poor dividend coverage, elevated leverage, and various operational missteps. Management has kept the dividend frozen since early 2017. During this period, shares of Compass Minerals have lost 5%, including dividends, while the S&P 500 has gained more than 70%. But under a new CEO since May 2019, Compass Minerals has made progress on several fronts. With free cash flow now covering the dividend for the first time since 2014 and leverage falling to its lowest level since 2015, we are upgrading Compass Minerals' Dividend Safety Score to Borderline Safe. Compass Minerals boasts an operating history dating back to 1844 and is a leading producer of salt (used [...]

Earlier this year, Leggett & Platt's dividend looked to possibly be in peril due to the COVID-19 pandemic. Organic sales in the second quarter plunged 31% as stores closed and plants idled, and the firm was on the brink of breaching a financial covenant limiting its leverage. In May, Leggett worked with its banks to amend its covenants and achieve greater flexibility to manage through the downturn. This included retaining its ability to continue paying dividends. However, we noted that another Dividend Safety Score upgrade was unlikely until Leggett's leverage fell and the pandemic's longer-term impact on consumer spending became clearer. With another quarter now in the books, Leggett's diversified business has staged an impressive recovery, resulting in material improvements to the firm's leverage [...]

Last spring, we downgraded V.F. Corp’s Dividend Safety Score from Safe to Borderline Safe. Mandated store closures and anxious shoppers led to a sharp decline in revenues across the industry.  The revival for retailers was uncertain as the severity and length of the pandemic was not clear.   V.F. Corp's cash flow no longer covered its dividend, leading us to wonder if management would follow many of its peers and consider temporarily suspending the payout to preserve capital out of an abundance of caution. However, amidst the uncertainty, V.F. Corp elected to use its strong balance sheet and access to liquidity to maintain its dividend.   Now nine months into the crisis, V.F. Corp is demonstrating progress in its recovery. Although revenues were down 18% last quarter, that is [...]

Shares of Walgreens fell nearly 10% on Tuesday following Amazon's introduction of its new online pharmacy service. Amazon Prime customers can now order prescriptions for home delivery within a couple of days. Amazon stocks most brand name and generic medications, works with most insurance plans, and will have pharmacists available 24/7 by phone. Besides trying to offer greater convenience, Amazon will make it easier for customers to choose the lowest price option by comparing their insurance co-pay and the price without insurance, after including Amazon Prime's prescription savings benefits. To get started, Amazon Prime members need to answer a handful of questions about their current medications and health conditions. They can then get their prescription on file with Amazon by contacting [...]

National Health Investors (NHI) has had an Unsafe Dividend Safety Score since May, reflecting the risks posed by its high exposure to senior housing (70% of rental revenue). While NHI does not operate any of its properties, providing some cash flow insulation as long as tenants continue paying rent, many of the REIT's senior housing tenants entered the year with low rent coverage ratios (i.e. cash flow to rent expense). COVID-19 has further strained the financial health of these operators. Labor and equipment costs have increased to protect the vulnerable senior population, and occupancy has declined to historic lows as move-in activity freezes. Further complicating NHI's outlook, the firm's four largest tenants generate over 50% of the REIT's revenue. This increases risk [...]

Simon's third-quarter earnings report released on November 9 showed that mall fundamentals remain weak. While the REIT collected 85% of its net billed rents, up from 72% in the prior quarter, Simon's sales were still down 25% year-over-year due to elevated levels of rent deferrals and abatements given to struggling tenants. Tenant bankruptcies and lease expirations also caused occupancy to slip 1.5% from the second quarter to 91.4%, its lowest level in at least a decade and down from more than 97% at the end of 2014. Despite these ongoing headwinds, Simon in the third quarter generated funds from operations (FFO) of about $630 million. This was more than enough to cover the REIT's capital expenditures of nearly $60 million, plus its [...]

In June, Ventas cut its dividend by 43% in response to pandemic-driven headwinds impacting its senior housing business (about 50% of net operating income). Occupancy fell to historic lows as restrictions on community access prevented move-ins, and expenses spiked for labor and personal protective equipment. The end result was a dividend that was no longer expected to be covered by the REIT's cash flow. Ventas' leverage increased as well, putting its BBB+ credit rating on watch for a downgrade at Standard & Poor's. While Ventas' rebased dividend improved its payout ratio, we wanted to see signs that a bottom was near for the company's senior housing business before considering a score change for the dividend.

Pfizer announced on Monday its COVID-19 vaccine candidate was found to be more than 90% effective, and no serious safety concerns had been observed. The drugmaker and its German partner BioNTech are the first to release successful results from a major clinical trial of a COVID-19 vaccine, according to Reuters. More data continues to be collected, but Pfizer expects to apply for emergency use authorization from regulators once the required safety milestone is achieved, which is expected to occur in the third week of November. The potential for a vaccine has been discussed since the pandemic set in earlier this year, but Pfizer's promising results increased the odds that a solution will indeed be found. The stock market jumped around 3% on this news, [...]

Dominion made its dividend cut official this week, reducing its fourth-quarter payout by 33% after closing a deal to sell its natural gas transmission and storage business. As we discussed in early July when this news was announced, we are upgrading Dominion's Dividend Safety Score to Safe with the lower dividend now in place. Without its midstream business, Dominion will generate 85% to 90% of its earnings from regulated utility operations, up from 70% to 75% previously.  The company's scale (over $10 billion in annual revenue), geographical diversity (utility operations span nearly 10 states), and large and growing (1.8% per year) customer base add to the strengths of this stable business.

AltaGas generates about 60% of its EBITDA from U.S. regulated gas utilities and the remaining 40% from an integrated midstream business in western Canada which connects natural gas liquids and natural gas to various markets. Source: AltaGas Investor Presentation The company in recent years went through a major transformation which culminated in a 56% dividend cut in December 2018. In January 2017, AltaGas decided to expand from its midstream roots and announced a $9 billion deal to acquire WGL, a U.S. regulated natural gas utility. The firm took on substantial debt to finance this deal.