A dramatic slowdown in auto sales is becoming more likely as consumers brace for tough times and governments appear increasingly poised to implement drastic measures to slow the spread of the novel coronavirus. Yesterday, GM announced that the automaker would suspend production and idle factories until at least March 30 (about two weeks) in response to the expected decline in demand as well to protect workers' safety. Management said the situation would be reevaluated week-by-week. There's a lot of uncertainty as to how severe the outbreak of the coronavirus will be and how far the government will go to contain the virus' spread. However, the likelihood of the economy falling into a severe recession, auto sales taking a prolonged hit, and consumers [...]

The unprecedented crash in oil prices, fall in interest rates, and continued slowdown in the global economy due to the novel coronavirus outbreak have rattled the confidence of many bank investors.  Depending on their magnitude and duration, these issues have potential to increase pressure on banks to conserve capital, making it a more difficult task to evaluate the safety of dividends in this complex industry. Cullen/Frost (CFR) has an impeccable track record of paying higher dividends for more than 25 consecutive years and running its business conservatively.  However, the energy industry accounts for 11.2% of the firm's total loans. While that's down from the bank's 16% exposure during the 2014-16 oil crash, it's still one of the highest energy concentrations [...]

The response by governments worldwide to stop the spread of the novel coronavirus has created unprecedented uncertainty in the restaurant industry. Restrictions are coming into place around the world that require restaurants to close or switch to carryout only. France, Italy, and Spain announced closures over the weekend, and several states (California, Ohio, Illinois, and others) followed suit soon thereafter (though carryout may still be offered). At this point, it would be unsurprising to see similar restrictions imposed more broadly across the U.S., potentially even in a matter of days or weeks. Even without mandatory closures, restaurant traffic will likely plummet due to social distancing recommendations made by the government. On Monday, President Trump issued guidance that people should avoid groups of 10 or more.

The coronavirus pandemic has sapped demand for gasoline and jet fuel as more people worldwide are told to stay home and avoid non-essential travel.  It's hard to say how long these restrictions will remain in place, but they have created a cloud of uncertainty over refineries, which primarily process crude oil into conventional and premium gasolines, diesel, jet fuel, and other products.

Ventas (VTR) has paid uninterrupted dividends for twenty years, including during the 2007-2009 financial crisis, a time which tested the financial strength of most businesses and forced one-third of dividend-paying S&P 500 companies to cut their payouts. However, Ventas is now facing an unprecedented and unforeseen risk: that the REIT's already weak-performing senior living portfolio, which accounted for 53% of net operating income in 2019, may be impacted by the emerging coronavirus and the virus' ramifications on the senior housing market.

BP (BP) has the most delicate balance sheet of any of the oil majors, and its leverage finished 2019 above the high end of management's target range. Following last week's unexpected plunge in oil prices, which we believe has potential to keep oil near $35 per barrel or lower (below the firm's breakeven point) for the foreseeable future, BP's lack of balance sheet capacity puts greater pressure on its dividend. Therefore, we are downgrading BP's Dividend Safety Score from Borderline Safeto Unsafe. The chart below shows BP's gearing ratio, which divides the firm's net debt by its net debt plus equity to show how much of its financing comes from debt. Companies with lower gearing can afford to add more debt to their balance [...]

On Monday, Occidental Petroleum (OXY) announced an 86% cut to its dividend and an approximately $2 billion reduction in capital spending. The catalyst was a 30% decline in the price of oil, the result of a price war initiated by Saudia Arabia. While we didn't foresee a crash in oil prices this severe and thus didn't anticipate a dividend cut coming so soon, we did identify several risks with Oxy's dividend that were reflected in our Borderline Safe rating and published in several notes. Specifically, here's what we said in a note on February 28: The bottom line is that debt reduction needs to be a top priority, and organic deleveraging won't come easy with the dividend consuming so much of Oxy's free cash flow. [...]

Unum (UNM) is a leading provider of disability, group life, and related insurance products. These businesses serve primarily employers' health plans, resulting in long-term relationships that have delivered predictable results; Unum's premiums and earnings have grown at a mid-single digit clip most years, and the company has paid steady dividends since 2004. Source: Unum Investor Presentation However, there's more to Unum's story. The company's "Closed Block" division, which accounted for less than 10% of earnings last year, consists mostly of long-term care policies Unum sold decades ago. The firm stopped offering these policies in 2012 but remains on the hook for their future benefit claims.

EPR Properties (EPR) is one of the more exposed REITs to the coronavirus outbreak. Movie theaters drive 45% of EPR's revenue, and Eat & Play businesses such as TopGolf and Pinstripes account for another 23% of sales. Schools represent 11% of revenue as well. Source: EPR Investor Presentation With social distancing becoming the norm across America to help slow down the spread of the novel coronavirus, many of EPR's tenants could be forced to close down temporarily. This would reduce their cash flow and potentially pressure their ability to pay rent.

Walt Disney's (DIS) business is in the crosshairs of the coronavirus outbreak, with access to theme parks (38% of sales) and movie theaters (studio films account for 16% of sales) appearing increasingly likely to be temporarily cut off.  This demand shock comes at a less than ideal time as only a year ago Disney closed its $71 billion acquisition of 21st Century Fox, doubling its leverage in the process. While the company's long-term outlook and brand remain solid, it's less clear if the looming coronavirus-related hit to short-term cash flow could threaten Disney's credit rating and increase pressure on management to pay down debt. In light of this uncertainty and a desire to remain conservative, we are downgrading Disney's Dividend [...]