Earlier this week IBM completed the spinoff of its infrastructure services business, which was named Kyndryl and began trading on Thursday under the ticker symbol KD. IBM investors received 1 KD share for every 5 IBM shares held. Kyndryl shares are not worth much compared to IBM, representing less than 5% of the two firms' combined market value. Rather than maintain such a small position in the spinoff, some IBM investors have likely chosen to dump their new Kyndryl shares and reinvest the money in core positions instead. Kyndryl's investment proposition is lacking for conservative income investors, too. The firm does not plan to pay a dividend in the near term, and its revenue declined at a mid-single-digit clip in [...]

Lockheed Martin slumped about 12% on Tuesday following disappointing guidance. Based on the forecast Lockheed provided in August, analysts had expected the defense giant's sales to grow roughly 3% next year. Instead, the firm this week nudged its 2021 revenue guidance lower and now sees sales next year falling about 1.5%. Management then expects low single-digit revenue growth through 2026 as the business roughly tracks the pace of expansion in the U.S. military budget. A handful of factors drove the disappointing outlook for 2021 and 2022. Most notably, pandemic-related supply chain delays worsened in August and September, reducing sales volumes across several production programs. Lockheed's F-35 fighter jet program, which accounts for nearly 30% of revenue, will also see a slight [...]

Shares of telecommunications companies like Verizon have been under pressure this year following record spending in the C-Band spectrum auction.With fierce competition to be a leader in 5G capabilities, telecom companies proved willing to go deeper into debt to ensure they were not left behind with inferior networks.Earlier this year, we wrote a note on Verizon that covered the importance of 5G and the potential impact of the record spend on additional spectrum licenses.As we expected, following Verizon's record $45 billion purchase of C-Band spectrum licenses, the company's debt ratio spiked to 2.9x, well beyond the firm's targeted 1.75 to 2.0x range.

Physicians Realty is a self-managed healthcare REIT with ownership in nearly 300 top-tier medical office buildings (MOB's) across 31 states.Since its founding in 2011, the REIT's portfolio has become more evenly balanced between properties located on campus with a hospital, an area it was far more concentrated in earlier on, and off-campus properties found closer to where patients live.Off-campus properties have become increasingly in demand because they tend to be more profitable for health care providers thanks to fewer government regulations and better reimbursement rates.  

International Paper completed the spin-off of its printing papers business on October 1 and, as expected, rebased its dividend on Tuesday to reflect the firm's lower cash flow. The dividend was reduced by about 10% (better than management's original estimate of a 15% to 20% cut). With the spin-off complete and the rebased dividend in place, we are upgrading the firm's Dividend Safety Score to Safe. While box manufacturing is a cyclical business, International Paper's solid dividend coverage, strengthened balance sheet, and improved business mix seem likely to protect the dividend over a full economic cycle.

Last week iron ore prices tumbled 20%, marking the worst week for the mineral since the financial crisis in 2008. The sell-off was stamped by China implementing production limits for steel, the primary use for iron ore, to help ensure blue skies for the upcoming winter Olympics in Beijing.However, global steel demand had already begun to wane, led by the cooling housing market in China, the world's largest consumer of steel.

The Biden administration last week announced plans to require staff vaccinations within America's Medicare and Medicaid-participating nursing homes, which include the vast majority of Omega's tenants. Most nursing facilities have been trying to incentivize their workers to get vaccinated from the beginning, but only 61% of the nation's staff was vaccinated as of August 15. Already struggling with disruptive labor shortages, nursing homes may now face even more challenges. A vaccine mandate will make it harder to recruit talent, and some existing staff members may leave the profession for jobs with no such requirement.

In recognition of Walmart's improved payout ratio, lower leverage, and e-commerce traction, we are upgrading the discount retailer's Dividend Safety Score from Safe to VerySafe. For years, Walmart's earnings stagnated as labor costs rose faster than sales and more of its product categories lost ground to e-commerce rivals such as Amazon. This trend never endangered Walmart's dividend, but it clouded the big-box giant's long-term outlook for growth. Walmart's ironclad grip on the brick-and-mortar retail world was being challenged a by a new shopping format, one it had been slow to react to. Walmart scrambled to catch up, pouring billions of dollars into investments across e-commerce, technology, and its supply chain. The firm also made some poor acquisitions, including its 2016 purchase of Jet.com [...]

Parker Hannifin on Monday announced plans to acquire British aerospace components maker Meggitt in a cash and debt transaction valued at more than $9 billion. This deal will boost Parker Hannifin's revenue by over 15% and nearly double the size of its aerospace division, which will account for roughly a third of the business going forward. While the acquisition's large size will increase Parker Hannifin's debt and result in significant integration costs, management remains committed to the dividend.

Faced with low oil prices, a stretched balance sheet, and growing pressure to invest more in low-carbon energy, BP in August 2020 slashed its dividend by 50% and unveiled a business transformation plan. Following the dividend cut, we maintained BP's Unsafe Dividend Safety Score in recognition of the international oil major's still-elevated leverage and the challenging commodity price environment. Since then, crude oil has nearly doubled to $75 per barrel – well above the $45 level BP needs to cover its capital spending and dividend. This helped BP hit its debt reduction target recently, providing more support for its A- credit rating from S&P.