British American Tobacco, or BAT, is one of the world's largest tobacco companies with a broad international reach. The company primarily sells cigarettes (~90% of sales), with oral tobacco and so-called next-generation products accounting for the rest.Through the years, BAT has generated consistent cash flow thanks to the addictive nature of its products, strong brand loyalty, and high barriers to entry from government-imposed advertising restrictions on cigarettes.Despite the industry's advantageous history, the pool of smokers in lucrative developed markets has been declining for many years. In fact, only 14% of the U.S. population smokes cigarettes – down from 21% in 2005, according to the CDC.

Simon's Empire Mall in South Dakota – the largest mall in the state – has seen its retailers' sales exceed their 2019 pre-pandemic level, according to comments made earlier this week by General Manager Dan Gies. Empire Mall's observation supports Simon's expectation that its mall retailers would likely see their sales start topping 2019 levels beginning in April as vaccinated consumers strapped with record excess savings return to brick-and-mortar retailers. Malls and in-person shopping are not dead, but parts of the industry continue facing an uncertain future as more consumers embrace online shopping and retailers shrink their store footprints.

Southern Company's two nuclear reactors under construction in Georgia may face more delays and require $2 billion of additional costs, according to testimony provided earlier this week by an independent monitor of the troubled project. Known as Vogtle Units 3 and 4, these plants are America's first new nuclear reactors built in more than 30 years and have faced a number of major complexities and operational setbacks. The project, which Southern has a 45.7% stake in, was initially expected to be completed in 2016 at a maximum cost of roughly $14 billion. But in-service dates have been delayed over five years and the total budget already exceeds $27 billion.

Last week Merck completed the spinoff of its women's health, biosimilars, and off-patent drugs businesses into the newly formed Organon & Co (OGN).Investors of Merck received one-tenth of a share of Organon common stock for every Merck common share owned, with cash paid in place of any remaining fractional shares.Organon has not declared an official dividend yet, but the company has communicated its long-term plans to pay a dividend with a payout ratio in the low 20% range.

National Health Investors (NHI) on June 3 cut its dividend by 18%. This was in line with the expectation we shared in May that NHI may lower its dividend by up to 25%, reflecting the challenging environment faced by its senior housing and skilled nursing tenants. NHI's dividend cut will save the REIT nearly $40 million annually (about 12% of revenue), providing more flexibility to adjust lease terms for distressed tenants until the industry has seen occupancy levels recover from the pandemic.  Management also noted the potential for asset sales and acquisitions to improve the portfolio's quality. 

The U.S. Supreme Court on Tuesday denied Johnson & Johnson's request to appeal a 2018 ruling in Missouri that its talc-based baby powders helped cause ovarian cancer, keeping the healthcare giant on the hook to pay $2.1 billion to 22 women. This eye-popping payout may seem especially alarming since J&J at the end of 2020 faced claims from 25,000 other plaintiffs (up from 17,900 in 2019) making similar allegations about the firm's body powders. Coupled with an expected liability of around $5 billion to settle litigation related to Johnson & Johnson's role in the opioid crisis, some investors wonder if these legal costs could balloon enough to threaten the dividend. Despite this week's setback, which highlights the wide range of liability outcomes [...]

At Exxon's annual meeting Wednesday, shareholders elected at least two of the four board directors (votes are still being counted) nominated by Engine No. 1, an activist investment firm that turned up the heat on the oil major late last year. Engine No. 1, which holds a mere 0.02% stake in Exxon, has criticized the company's poor performance over the past decade. The tiny hedge fund chided management for aggressive, debt-fueled spending that has hurt returns and alleged that Exxon has no credible plan to protect value against a widening range of energy transition scenarios. To address these issues, Engine No. 1 wants Exxon to reduce oil production, invest only in projects with lower break-even prices, gradually diversify its business to prepare for a decline [...]

April 2021 marked the first monthly occupancy gain in Welltower's senior housing operating (SHO) portfolio since prior to the pandemic. With the vaccine rollout enabling many senior living communities to drop comprehensive move-in restrictions that were implemented last year to reduce the risk of COVID-19 transmission, Welltower is hopeful that the industry has finally bottomed out.  Prior to the pandemic, the senior housing industry had never seen occupancy dip below 80%. But within just 15 months, Welltower's occupancy fell from nearly 86% to less than 74%.

Activist investor Elliott Management on May 17 published a letter to Duke Energy's board urging the utility to break itself into three separately traded companies. Elliott argued that Duke's sprawling portfolio of utilities, which spans parts of the Midwest, Florida, and the Carolinas, "has burdened shareholders with a conglomerate discount relative to the value of Duke's utility franchises." If each of these utilities was separated into its own publicly traded company, Elliott argues they would improve their operating performance due to additional management focus and achieve a higher valuation compared to Duke's consolidated structure.

AT&T on Monday announced plans to combine its WarnerMedia business (around 20% of cash flow) with rival Discovery to form a new publicly traded company. AT&T will maintain its current dividend until the transaction closes, which is expected in mid-2022. Then, management will reduce the dividend to account for the distribution of WarnerMedia to AT&T shareholders, who will own 71% of the new media company. Following the separation, management expects AT&T to have an annual dividend payout ratio of 40% to 43% on anticipated free cash flow of at least $20 billion.