Dividend stocks can be attractive options for long-term investors, in part, because of the recurring income they can generate. But investors need to remember that dividend payouts aren’t a guarantee, regardless of a company’s track record of distributions. Investors need to consider a company’s future growth prospects as part of their analysis on whether to invest for the long haul, even for dividend stocks.
Three stocks that made drastic changes to their dividend payments this year that surprised some investors are Estée Lauder (NYSE: EL), Medical Properties Trust (NYSE: MPW), and Intel (NASDAQ: INTC). Here’s why those cuts took place, and why the cuts may not have been all that surprising.
Are You Missing The Morning Scoop? Wake up with Breakfast news in your inbox every market day. Sign Up For Free »
In October, cosmetics company Estée Lauder withdrew its forecast for the year based on what it was seeing in the troubling Chinese market. It also slashed its dividend nearly in half. The cut comes as the struggling company also has a new CEO taking over, Stéphane de La Faverie, to help right the ship.
A quick look at the stock’s payout ratio highlights just why a cut to the dividend may not have been all that surprising.
Worsening economic conditions, particularly in China, are weighing on its operations, with Estée Lauder incurring a net loss for the past two quarters. Until that situation improves, it’ll be difficult to determine if the company can justify paying any dividend at all to its shareholders.
For now, the dividend remains intact and yields 2%, but investors shouldn’t assume that another cut won’t happen in the future.
One company that has cut its dividend multiple times within a short period is real estate investment trust (REIT) Medical Properties Trust. The REIT focuses on properties tied to the healthcare industry, and just like with any other sector, its business is going to depend on the strength of its tenants.
Unfortunately, Medical Properties’ portfolio has included multiple struggling tenants, including Steward Health, which recently filed for bankruptcy protection. While Medical Properties has transitioned away from Steward Health recently, there are still question marks that remain about its operations and how strong the business will be in the future. The REIT has been selling off assets, and with a smaller portfolio, it may not be able to keep paying even a reduced dividend. Its current quarterly payout of $0.08 is less than one-third of the $0.29 that it was paying shareholders a year and a half ago.
Impairment charges have hit the business hard of late, but even when factoring those out, it’s hard to ignore how much worse the business is doing right now. During the first nine months of the year, the company’s normalized funds from operations totaled $375 million — roughly half of the $733 million it reported during the same period a year ago. Even after two dividend cuts in less than two years, investors should be careful as it is quite possible Medical Properties’ dividend could go lower still.
Computer company Intel didn’t just lower its dividend; it suspended it entirely earlier this year. The company’s CEO Pat Gelsinger said that the move was necessary due to liquidity needs and for the business to be able to “support the investments needed to execute our strategy.” Intel has been investing heavily in its foundry business, which has been a challenge. In the company’s most recent quarter, which ended on Sept. 28, the foundry business incurred an operating loss of $5.8 billion — more than four times the $1.4 billion loss it reported a year earlier.
Balancing an aggressive growth strategy while also trying to pay a dividend can be challenging, especially for a business such as Intel which isn’t generating massive profits. Intel has incurred an operating loss for three straight quarters, and with a long road ahead, investors shouldn’t assume that the company will get back to paying a dividend anytime soon.
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
-
Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $350,915!*
-
Apple: if you invested $1,000 when we doubled down in 2008, you’d have $44,492!*
-
Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $473,142!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of November 25, 2024
David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intel. The Motley Fool recommends the following options: short February 2025 $27 calls on Intel. The Motley Fool has a disclosure policy.
Dividends Are Never a Guarantee. These 3 Stocks Made Massive Cuts to Their Payouts This Year was originally published by The Motley Fool