Philip Morris reported earnings on July 21 and made clear that it remains committed to its dividend despite uncertainties created by the pandemic:  "Our balance sheet and financial position are strong, and our commitment to the dividend remains unwavering."– CFO Emmanuel Babeau As expected, lockdown measures and reduced social gatherings reduced demand for combustible cigarettes, which experienced a 17.6% decline in shipment volumes. However, IQOS heated tobacco volumes grew by 24%, increasing Philip Morris's mix of reduced-risk products (RRPs) to 24% of net revenues (up from 18.7% in 2019 and 0.2% in 2015). Philip Morris had expected its pace of IQOS user growth to slow as the pandemic would limit the firm's ability to engage with consumers face-to-face in retail stores. Needless [...]

Coca-Cola reported earnings on July 21, closing the books on "what has arguably been the toughest and most complex quarter in Coca-Cola history," according to Chairman and CEO James Quincy. As expected, organic sales fell 26% due to pandemic-related challenges in away-from-home markets, which account for about half of Coca-Cola's revenue and include restaurants, bars, cinemas, and sports arenas. However, easing lockdown measures around the world have improved business trends. In April, Coca-Cola's global unit case volumes declined 25%. Case volume fell only 10% in June and is down mid single digits globally thus far in July.  Management expects the future trajectory for away-from-home sales to closely correlate with the easing of lockdowns through the rest of the year.  Coca-Cola acknowledged that [...]

On July 20, Chevron agreed to acquire independent oil and gas producer Noble Energy for $5 billion in an all-stock deal. Chevron will also assume Noble's debt of about $8 billion. We don't expect this deal to materially affect Chevron's dividend profile and are maintaining the firm's Safe Dividend Safety Score. The downturn in energy markets seemed likely to lead to consolidation as many smaller shale companies lacked affordable access to capital and needed higher oil and gas prices to service their debt loads. Chevron's acquisition of Noble marks the first major deal since the pandemic began earlier this year. Noble adds low-cost reserves and resources to Chevron's portfolio, including assets in the Permian basin which are adjacent to Chevron's existing footprint. Noble also [...]

On Monday, STORE reported that as of July 17 it had received 85% of rent due this month. That's up from 71% in April, 68% in May, and 78% in June. The improved collection rate was driven by higher rent collected from tenants in the restaurant (14% of rent), education (7%), and furniture (6%) sectors. About 40% of STORE's rent comes from industries that faced temporary closures due to COVID-19, and those three sectors represent the REIT's highest exposures. Management estimates that 92% of STORE's locations are currently open for business, including the most recently mandated business closures, which is slightly ahead of where STORE was in June (91%) and well ahead of April (65%). While some sectors are facing renewed closure [...]

Walgreens Boots Alliance reported earnings on July 9, providing a closer look at the pandemic's impact on its business. From March through May, Walgreens' sales actually increased slightly but the firm's adjusted EPS fell 43%. In its core Retail Pharmacy USA segment (about 75% of profits last year), same-store sales grew 3% as consumers continued snapping up essential items. However, a surge in lower-margin home deliveries, a shift away from more profitable discretionary retail goods, and higher costs to clean stores and pay employees ate into margins (adjusted operating income slumped 38%). Walgreens' Retail Pharmacy International business (11% of profits), which consists mostly of Boots (a pharmacy-led health and beauty retailer in the UK), was hit especially hard. Retail same-store sales slumped [...]

On May 8, we published a note discussing the fragile state of Energy Transfer's Borderline Safe Dividend Safety Score.  While the firm's distribution is expected to remain covered by cash flow, we were concerned about lower pipeline volumes and counter-party credit risk resulting from weak oil and gas prices.These issues could materially impact Energy Transfer's ability to deleverage, threatening the firm's investment grade credit rating which sits one notch above junk and was issued a negative outlook by Standard & Poor's on May 12.  While likely a measure of last resort, reducing the distribution would free up more cash flow for debt reduction to protect the rating. A couple of months have passed since then, and several developments have further clouded the outlook for [...]

On Sunday, Duke Energy and its building partner Dominion Energy announced plans to scrap construction of the Atlantic Coast Pipeline (ACP) following years of delays, cost overruns, and regulatory headaches. Duke Energy owned 47% of this $8 billion natural gas pipeline project and expects to record a multibillion-dollar charge this year as a result of the cancellation. The utility will also no longer receive any earnings contributions from the project. Is this financial setback enough to jeopardize Duke Energy's dividend? We don't think so. First, Duke Energy is a very large utility, and the ACP was just one part of its expansive operations. The company previously announced a 2020 EPS target of $5.25, which included projected contributions from the ACP of $0.20, [...]

On Sunday, Dominion announced plans to sell its natural gas transmission and storage business to Berkshire Hathaway in a $9.7 billion deal. This division generated nearly 25% of Dominion's operating earnings. Driven primarily by the loss of ongoing cash flow once the sale closes later this year, Dominion expects to "rebase" (i.e. cut) its dividend by about 33% from 94 cents per quarter to 63 cents beginning with the fourth-quarter payment in December. We had a Safe Dividend Safety Score on Dominion and own shares in our Top 20 and Conservative Retirees portfolios. Needless to say, we were surprised by this news and had not anticipated a major divestiture taking place when issuing our rating. Given the discretionary nature of this strategic decision, I'm [...]

The Federal Reserve released the results of its 2020 stress test last Thursday, providing the first look at how regulators are assessing the ability of America's largest banks to withstand the coronavirus. The good news is that all 33 of the banks subject to the Fed's test were projected to remain above minimum regulatory capital requirements under each scenario, including V-, U- and W-shaped economic recoveries. In other words, the biggest banks (including Wells Fargo) appear well positioned to survive most financial storms caused by the pandemic without needing to raise more capital. Dividends, which reduce the amount of capital banks retain, were also allowed to continue but with some important caveats.

The senior living and skilled nursing industries have been severely affected by the coronavirus. Not only are their residents more vulnerable if they contract COVID-19, but these facilities are designed for communal living, making it more difficult to control transmission of the virus. As a result of the financial challenges caused by the pandemic, several healthcare REITs have already announced dividend cuts, including Ventas, Welltower, and Sabra. With a dividend yield near 10%, Omega Healthcare has some income investors wondering if it could be next to slash its payout. An imminent dividend cut seems unlikely, but the payout's safety beyond the next couple of months will depend on the depth and duration of the health crisis.