National Health Investors (NHI) has kept its dividend covered with cash flow throughout the pandemic despite the challenging environment faced by its senior housing and skilled nursing tenants. The healthcare REIT's rent collection rates averaged over 95% in 2020 and exceeded 94% in the first quarter of 2021. However, Covid's impact continues to be felt at the operator level.

Omega Healthcare continues collecting virtually all rent due despite the crushing blow dealt by the pandemic to many of its skilled nursing tenants (over 80% of revenue). As we discussed last summer, operators of skilled nursing facilities had razor-thin margins heading into the crisis, with around half of them failing to turn a profit. Years of falling occupancy (oversupply), rising labor costs, and changes to Medicare reimbursement rates have contributed to the industry's long decline in profitability.

In May last year when pandemic uncertainties were at their peak, STORE Capital's rent collection rate fell to just 64% as restaurants (14% of pre-pandemic rent), gyms (5%), movie theaters (5%), and other "non-essential" tenants braced for a long downturn.  At this level of rent collections, cash flow no longer covered the dividend.  And management had made it clear they were opposed to borrowing money to fund the dividend, putting the payout in peril if cash flow did not rebound quickly.  Fortunately, over the year since conditions have recovered quicker than many had expected as the economy reopened.  STORE was able to collect 95% of rent payments last month, and occupancy has remained strong with 99.6% of its properties actively [...]

In April last year, in the midst of a burgeoning pandemic, National Retail Properties was able to collect only 52% of rent payments due. With cash flow failing to cover the dividend, the retail REIT cautioned investors that "by no means is the dividend untouchable." Over the year since, conditions have improved so much that management recently boasted, "looking ahead to 2021 and beyond, you should expect... us to be able to continue our long history of consecutive annual dividend increases." National Retail even issued a modest dividend increase last fall, extending its dividend growth streak to 31 consecutive years despite the challenging backdrop. Since the pandemic low, every quarter has experienced improved rent collection. Most impressive was last month's [...]

AbbVie has demonstrated enough progress deleveraging its balance sheet, integrating its transformative acquisition of Allergan, and advancing its drug pipeline to earn a Dividend Safety Score upgrade from Borderline Safe to Safe. Progress across these areas is critical to protect the dividend in 2023 and beyond when blockbuster drug Humira (40% of sales) loses exclusivity in America. AbbVie will face fierce biosimilar competition eager to chip away at Humira's $16 billion of U.S. sales. When Humira lost patent protection in Europe in late 2018, the drug's revenue slumped 45% in the first year. Management expects a similar result in the U.S., implying the firm could lose at least $8 billion of sales (15% of total revenue) in a single year. Company-wide sales are [...]

Realty Income on Thursday announced plans to acquire VEREIT, a retail REIT about half of its size. The all-stock transaction is expected to close in the fourth quarter of 2021. This large acquisition will not impact Realty Income's dividend policy. If anything, the REIT's dividend coverage should improve moderately. Management expects the deal to increase Realty's adjusted funds from operations (AFFO) per share by at least 10% in year one. Based on the firm's current dividend level and 2021 AFFO guidance, we estimate Realty's pro forma AFFO payout ratio would be 74% this year versus 81% on a standalone basis. 

Since announcing in July 2019 plans to spin off its established drug business, Pfizer has communicated it would lower its dividend to reflect its reduced standalone cash flow. However, income investors were expected to be kept whole after accounting for the new dividend to be paid by the spinoff, Viatris. This dividend adjustment was expected to occur during the second quarter when Viatris declared its first dividend. But Pfizer on Thursday announced that it will now keep its full dividend intact going forward, resulting in an effective raise for shareholders: "The board has decided to maintain Pfizer’s quarterly dividend at its current rate despite the planned declaration of a dividend payment by Viatris Inc. that would be payable to those Pfizer shareholders that have elected [...]

The Biden administration is considering proposals to ban menthol and reduce nicotine levels in cigarettes to non-addictive levels, the Wall Street Journal reported on Monday. If these policies move forward, they will almost certainly face legal challenges from the tobacco industry and take years to implement. Altria’s short-term outlook arguably has not changed. But the long-term consequences of these policies, if enacted, could be severe. Lowering nicotine levels has for decades been discussed as a potential endgame for combustible cigarettes. With less of this addictive chemical in each cigarette, more smokers would quit or pursue other forms of nicotine delivery, and prospective smokers may never develop the habit.

With vaccine availability increasing and more economies opening up, Coca-Cola on Monday reported that its total sales volumes in March recovered to levels last seen in 2019 prior to the pandemic. The firm's beverage volumes had declined as much as 25% in April 2020 when numerous countries implemented synchronized lockdowns. While trends slowly improved throughout the year, Coke was still seeing mid-single-digit volume declines through mid-February. The company's return to pre-pandemic volumes is especially impressive given Coke's distribution mix. Nearly half of the firm's revenue is generated from away-from-home channels such as restaurants, convenience stores, movie theaters, and event venues. This part of the business continues improving sequentially but has not yet fully recovered. Even Coke's U.S. restaurant volumes were still down in March [...]

In response to economic uncertainty created by the pandemic, the Federal Reserve last year imposed additional capital preservation measures on America's largest banks. Banks with more than $100 billion in assets – including JPMorgan – were restricted from repurchasing shares until early 2021, and their dividends are still not allowed to be increased. Total buybacks and dividends cannot exceed net income generated over the past year either. These restrictions helped ensure that the country's most important banks maintained adequate capital reserves to survive a potentially severe recession and continue providing loans to struggling customers. With the U.S. economy recovering, the Fed on March 25 announced plans to end its capital distribution restrictions in July for most firms. By then the Fed will [...]