On July 20, Chevron agreed to acquire independent oil and gas producer Noble Energy for $5 billion in an all-stock deal. Chevron will also assume Noble's debt of about $8 billion. We don't expect this deal to materially affect Chevron's dividend profile and are maintaining the firm's Safe Dividend Safety Score. The downturn in energy markets seemed likely to lead to consolidation as many smaller shale companies lacked affordable access to capital and needed higher oil and gas prices to service their debt loads. Chevron's acquisition of Noble marks the first major deal since the pandemic began earlier this year. Noble adds low-cost reserves and resources to Chevron's portfolio, including assets in the Permian basin which are adjacent to Chevron's existing footprint. Noble also [...]

On Monday, STORE reported that as of July 17 it had received 85% of rent due this month. That's up from 71% in April, 68% in May, and 78% in June. The improved collection rate was driven by higher rent collected from tenants in the restaurant (14% of rent), education (7%), and furniture (6%) sectors. About 40% of STORE's rent comes from industries that faced temporary closures due to COVID-19, and those three sectors represent the REIT's highest exposures. Management estimates that 92% of STORE's locations are currently open for business, including the most recently mandated business closures, which is slightly ahead of where STORE was in June (91%) and well ahead of April (65%). While some sectors are facing renewed closure [...]

Walgreens Boots Alliance reported earnings on July 9, providing a closer look at the pandemic's impact on its business. From March through May, Walgreens' sales actually increased slightly but the firm's adjusted EPS fell 43%. In its core Retail Pharmacy USA segment (about 75% of profits last year), same-store sales grew 3% as consumers continued snapping up essential items. However, a surge in lower-margin home deliveries, a shift away from more profitable discretionary retail goods, and higher costs to clean stores and pay employees ate into margins (adjusted operating income slumped 38%). Walgreens' Retail Pharmacy International business (11% of profits), which consists mostly of Boots (a pharmacy-led health and beauty retailer in the UK), was hit especially hard. Retail same-store sales slumped [...]

On May 8, we published a note discussing the fragile state of Energy Transfer's Borderline Safe Dividend Safety Score.  While the firm's distribution is expected to remain covered by cash flow, we were concerned about lower pipeline volumes and counter-party credit risk resulting from weak oil and gas prices.These issues could materially impact Energy Transfer's ability to deleverage, threatening the firm's investment grade credit rating which sits one notch above junk and was issued a negative outlook by Standard & Poor's on May 12.  While likely a measure of last resort, reducing the distribution would free up more cash flow for debt reduction to protect the rating. A couple of months have passed since then, and several developments have further clouded the outlook for [...]