On September 13, Gilead announced plans to acquire oncology company Immunomedics for $21 billion. Once the deal closes, we estimate Gilead's leverage ratio will increase from about 0.4x to around 2.0x, marking its highest level in at least a decade. In light of Gilead's higher financial leverage, we are downgrading the firm's Dividend Safety Score from Very Safe to Safe. However, Gilead expects to retain an investment-grade credit rating following the transaction, and we believe the company's dividend remains secure. Not only will Gilead continue to have a solid balance sheet with flexibility to make more acquisitions to support its drug portfolio, but the firm's dividend should remain well covered by cash flow as well.

Exxon Mobil has finally drawn a line in the sand with its balance sheet. During its earnings call in late July, the company said it does not plan to take on additional debt during this oil market downturn.  Instead of borrowing more money to fund the dividend until oil prices improve, Exxon hopes to keep its payout safe by further slashing capital spending and operating costs. "We can't know with certainty how the market will evolve from here. There's too many unknowns, of course. So you have to maintain a degree of flexibility to be able to respond should the recovery not play out as expected. But we feel very confident that we will be able to maintain that level [...]

Speaking at an investor conference on September 9, Magellan CEO Mike Mears reiterated his confidence in the firm's guidance and distribution safety. Mr. Mears said demand for gasoline, diesel, and jet fuel tracked Magellan's projections in July and August, keeping the partnership on track to meet its full-year financial targets. "Right now, based on what we've seen, everything we've seen with regards to our refined product demand recovery is consistent with the [distributable cash flow] guidance that we gave at the end of the second quarter."– CEO Mike Mears Magellan said gasoline demand was down around 8% to 10% in July, with some improvement towards the end of the month.

Annaly, the largest mortgage REIT, has lowered its dividend twice in the last two years, including a 12% cut announced in June. As we discussed in May 2019, Annaly's dividend has looked risky under our Dividend Safety Score system for years. While we continue to believe that mortgage REIT dividends are unreliable over a full economic cycle, Annaly's rightsized dividend is now better covered by core earnings.