Federal Realty on Wednesday presented a business update. The retail REIT said it collected 83% of third-quarter rent, up from 68% in the second quarter. This trend gave management the confidence to raise Federal Realty's dividend by 1% in August, marking the company's 53rd consecutive annual increase. Source: Federal Realty Data, Simply Safe Dividends While higher collections are welcome news, we previously estimated that Federal Realty's pre-pandemic rent revenue could only decline around 15% to 20% before cash flow would fall short of covering the dividend.

Build it and they will come. That was the midstream industry's mantra for much of the last decade as some of the largest firms combined to nearly triple their annual spending on pipelines, storage facilities, and other assets. Source: Simply Safe Dividends, Company Filings This rapid buildout of America's energy infrastructure was in response to the boom in U.S. energy production ushered in by advancements in fracking. After decades of stagnation or decline, domestic oil and gas production surged. Source: U.S. Energy Information Administration, Simply Safe Dividends Midstream infrastructure generally takes many years to earn a return and was put in the ground under the assumption that domestic energy production would remain strong.

On September 13, Gilead announced plans to acquire oncology company Immunomedics for $21 billion. Once the deal closes, we estimate Gilead's leverage ratio will increase from about 0.4x to around 2.0x, marking its highest level in at least a decade. In light of Gilead's higher financial leverage, we are downgrading the firm's Dividend Safety Score from Very Safe to Safe. However, Gilead expects to retain an investment-grade credit rating following the transaction, and we believe the company's dividend remains secure. Not only will Gilead continue to have a solid balance sheet with flexibility to make more acquisitions to support its drug portfolio, but the firm's dividend should remain well covered by cash flow as well.

Exxon Mobil has finally drawn a line in the sand with its balance sheet. During its earnings call in late July, the company said it does not plan to take on additional debt during this oil market downturn.  Instead of borrowing more money to fund the dividend until oil prices improve, Exxon hopes to keep its payout safe by further slashing capital spending and operating costs. "We can't know with certainty how the market will evolve from here. There's too many unknowns, of course. So you have to maintain a degree of flexibility to be able to respond should the recovery not play out as expected. But we feel very confident that we will be able to maintain that level [...]

Speaking at an investor conference on September 9, Magellan CEO Mike Mears reiterated his confidence in the firm's guidance and distribution safety. Mr. Mears said demand for gasoline, diesel, and jet fuel tracked Magellan's projections in July and August, keeping the partnership on track to meet its full-year financial targets. "Right now, based on what we've seen, everything we've seen with regards to our refined product demand recovery is consistent with the [distributable cash flow] guidance that we gave at the end of the second quarter."– CEO Mike Mears Magellan said gasoline demand was down around 8% to 10% in July, with some improvement towards the end of the month.

Annaly, the largest mortgage REIT, has lowered its dividend twice in the last two years, including a 12% cut announced in June. As we discussed in May 2019, Annaly's dividend has looked risky under our Dividend Safety Score system for years. While we continue to believe that mortgage REIT dividends are unreliable over a full economic cycle, Annaly's rightsized dividend is now better covered by core earnings.

Kraft Heinz hosted its annual investor day on September 15 and announced several actions that improve the firm's dividend safety outlook. Therefore, we are upgrading Kraft Heinz's Dividend Safety Score from Unsafe to Borderline Safe. The packaged food maker previously cut its dividend in February 2019, but its smaller payout continued looking speculative due to the firm's debt-saddled balance sheet and declining sales. In February 2020, Standard & Poor's even downgraded Kraft Heinz's credit rating to junk (BB+), citing the company's "unwillingness to cut its high payout dividend at a time that leverage is elevated because of underperformance." However, a lot has changed in the last six months to put Kraft Heinz's payout on somewhat stronger ground.

Con Edison faces intense political pressure following Tropical Storm Isaias, which hit the East Coast on August 4. Isaias caused the second largest number of power outages in Con Edison's history; only Superstorm Sandy in 2012 caused more outages. Over 10% of Con Edison's customers lost power. Within that group, 25% of customers were still without power after three days, and 10% had no power after five days. Not only were New Yorkers upset by the lengthy outage, but many of them were confused by information displayed on the utility's outage map and received erroneous restoration messages. Frustrated by the widespread power outages, New York Governor Andrew Cuomo threatened the state's utilities at a recent press briefing: “Can a private company even [...]

Best Buy's performance during the pandemic has exceeded our expectations, prompting us to upgrade the company's Dividend Safety Score from Borderline Safe to Safe. Best Buy reported earnings results on August 25, recording comparable sales growth of 5.8% despite its stores being open by appointment only for about half of the quarter. With all of its stores now fully reopened, sales increased 20% through the first three weeks of August. Best Buy's product mix and focus on digital (19% of sales last year) have driven its resilience during an otherwise very difficult time for most brick-and-mortar retailers.

On August 24, Portland General Electric (PGE) disclosed that its energy trading activities in wholesale electricity markets will incur third quarter losses of up to $155 million. For context, the regulated utility over the last year generated total net income of about $240 million. Shares closed 8% lower on the news. As a result of this surprise loss, management lowered full-year 2020 EPS guidance by about 40% at the midpoint. Earnings are no longer expected to cover the dividend in the year ahead.