AT&T purchased $27.4 billion of spectrum at the Federal Communications Commission's recent record-setting auction and plans to reduce its leverage ratio to 2.5x in 2024, according to the firm's March 12 business update.Both of these figures missed our expectations. In the analysis we shared in February, we assumed AT&T would spend $20 billion at the spectrum auction and see its leverage ratio fall below 2.3x in 2023 (and even lower in 2024). We said we would consider downgrading AT&T's Dividend Safety Score if its spectrum costs were greater than we anticipated and management showed a willingness to run the business with higher leverage in the short term. With both of those factors materializing and reducing the company's margin for error, we are [...]

PPL since August has been shopping its U.K. utility operations, which generated 53% of the firm's adjusted earnings last year. On Thursday, management finally found a buyer. PPL will sell its U.K. business to National Grid in a transaction valued at $19.4 billion. PPL shares jumped 5% on the news as the assets achieved a higher value than expected; Reuters previously suggested the business could fetch a valuation of up to around $16 billion. Management expects net cash proceeds of $10.2 billion once the deal closes within four months. PPL will use $3.8 billion of these funds to acquire Narragansett Electric, a regulated utility in Rhode Island owned by National Grid. Following these transactions, PPL will consist of regulated utilities across Pennsylvania, Kentucky, [...]

We have been watching Enterprise Products Partners closely in light of the substantial excess capacity in the midstream industry. Service providers' forecasts of production growth have turned out to be overly optimistic, resulting in too much infrastructure development that has been further accentuated by the pandemic-driven decline in domestic energy production. Source: Enterprise Products Partners, Investor Presentation This environment could pressure midstream service providers' future cash flow as contracts expire and potentially renew at lower rates and reduced volume commitments. Enterprise hosted an analyst day earlier this month, providing the most recent look at where the midstream industry might be headed. The meeting highlighted improving production rates and increased capacity utilization.Oil and gas production has bounced off pandemic lows while natural gas [...]

Iron Mountain reported earnings on Wednesday and delivered better-than-feared results for the year. Sales in 2020 fell 3%, and adjusted EBITDA was flat. But the bigger story was management's guidance. Iron Mountain expects 2021 organic revenue and adjusted EBITDA to grow by 2-6% and 7-10%, respectively. If realized, this would mark the company's highest level of growth in a decade and nudge Iron Mountain's payout ratio and leverage closer to management's target levels. Based on the midpoint of guidance, the REIT's adjusted funds from operations (AFFO) payout ratio is projected to sit near 75% this year. That's down from 82% in 2019 and could reach the firm's long-term target (low to mid-60s) by 2023.

Energy Transfer on Wednesday announced plans to acquire Enable Midstream in a $7 billion all-equity transaction. This deal will increase Energy Transfer's units outstanding by about 14%, but management plans to maintain the firm's current $0.61 per unit distribution. We estimate the combined company's distributable cash flow (DCF) payout ratio will remain practically unchanged from Energy Transfer's current projected level near 30%. Similarly, our analysis suggests that Energy Transfer's net debt-to-forward adjusted EBITDA leverage ratio will remain near 4.9x, ticking down less than 0.1x compared to Energy Transfer's standalone metrics. Management previously targeted a leverage range of 4.0x to 4.5x, so this acquisition does not immediately push Energy Transfer much closer to its goal.

Investors will have to wait a little longer to find out how much AT&T spent in a recent record-setting auction for spectrum and how its deleveraging plans will be impacted. As part of its earnings report in late January, AT&T told investors it was still in the quiet period for the FCC's spectrum auction and could not comment on the details of its bids yet. The company will instead host an analyst day by the end of March to update investors on where its leverage ratio stands following the auction and provide goals for the future. The recently frozen dividend will remain part of the plan, with management "committed to sustaining our dividend at current levels" after finishing 2020 with a "payout ratio at [...]

Federal Realty on Thursday reported fourth-quarter earnings and maintained its dividend as rent collections continued improving. The shopping center REIT collected 89% of the rent it billed during the fourth quarter, up from 85% in the third quarter and 72% in the second quarter. However, management expects 2021 to be another tough year. About 85% of Federal's property operating income comes from markets with some of the most restrictive government-imposed COVID laws in the country, including California, New York, and New Jersey. This has continued to hurt non-essential retailers. As you can see, rent collection rates remain especially weak across restaurants (15% of Federal's rent), health and beauty firms (5%), gyms (4%), and experiential retailers (2%).

Sysco remains challenged by the pandemic as restaurants (more than 60% of revenue), schools, hotels, and other foodservice customers continue operating at relatively low capacity levels. The food distributor's revenue has gradually recovered following a 60% decline in late March last year, but sales were still off 23% last quarter. While the operating environment will remain difficult for the next quarter or two, the vaccine rollout is expected to significantly ease restaurant restrictions. This should deliver an immediate pop for Sysco's business as existing customers order more food and supplies. The company has already seen this play out in states such as Florida and Texas where dine-in restrictions are already limited.

Verizon closed out 2020 with solid financial results.  While sales contracted a modest 3% with minor pandemic related headwinds, earnings grew slightly thanks to margin improvements. Cash flows remained strong and investors were rewarded with Verizon’s 14th consecutive annual dividend increase. Overall, Verizon had a routine year despite the chaos found elsewhere as the world slogged through an economic downturn. But as the global economy continues to stabilize, telecom companies are entering this year with increased instability.

Magellan on Tuesday reported earnings, closing out a year which management described as having "the most challenging industry and economic conditions experienced in our 20-year history as a public company." Magellan's units slumped more than 4% on the update after management's guidance indicated that this year may not be much better. The firm's distributable cash flow (DCF) fell 20% in 2020, and Magellan's guidance called for DCF to decline another 2% this year. A gradual recovery in fuel demand and the recent completion of various expansion projects will help buoy cash flow, but these factors aren't expected to fully offset continued weakness in crude oil transportation and blending profits. Magellan's crude oil segment (34% of operating income) consists mostly of long-haul pipelines [...]