In 2017, Target's dividend yield approached 5% as investors worried about the long-term fate of big-box retailers in the age of Amazon. The company's same-store sales had started declining as more shopping migrated online, and Target's margins dipped as management invested in a digital-focused turnaround plan. Despite these bumps in the road, Target always maintained a Safe Dividend Safety Score, reflecting the company's reasonable payout ratio, consistent cash flow generation, and healthy balance sheet. Today we are upgrading Target's Dividend Safety Score to Very Safe as the firm has materially improved its key fundamental metrics and demonstrated further traction with its turnaround plan. Target reported earnings on August 19 and delivered the company's strongest ever comparable sales growth of 24%, fueled by the pandemic.

The pandemic has caused significant disruption for Churchill Downs' business. The firm's flagship event, the Kentucky Derby, was delayed from early May to September, hurting its horse racing operations (28% of 2019 adjusted EBITDA). Meanwhile, casinos (58%) were forced to close temporarily. And although the online gaming business (14%) has continued growing, Churchill Downs' second-quarter revenue fell more than 60% and the company operated at a loss. When we looked at the business in March, we decided to take a wait-and-see approach with the firm's Dividend Safety Score since the firm's overall financial health seemed to hinge on whether or not the Derby would take place, and what it might look like. Since Churchill Downs pays an annual dividend, usually [...]

Solar Senior Capital is an externally managed business development company that invests primarily in loans of private middle market firms to generate income. The company's portfolio is valued at around $500 million and diversified across 215 borrowers in over 115 industries, with an average issuer exposure of less than 0.5% of the portfolio. No industry accounts for more than 25% of the portfolio either. Diversified financial services represents 22.5% of Solar's investments, followed by healthcare providers (18%), professional services (9.3%), insurance (8.6%), and communications equipment (5.4%). Solar has had a Very Unsafe Dividend Safety Score for years, reflecting the firm's high payout ratio and small size, as well as the generally risky nature of business development companies' operations.

BHP is the largest mining company in the world. The firm extracts and processes iron ore (63% of EBITDA), copper (20%), petroleum (10%), and coal (9%). Commodity businesses generally have little control over the selling price of their products and must invest heavily to secure and extract new resources. Coupled with their high fixed costs and operating leverage, firms such as BHP can experience major swings in earnings from one year to the next, making it harder for them to pay predictable dividends. In 2016, BHP acknowledged these challenges by implementing a flexible dividend policy tied to the performance of its business. Specifically, BHP targets a minimum dividend of 50% of underlying profits. The board can also return additional cash [...]