Unexpectedly Intriguing!
March 3, 2015

Following its apparent contraction in January 2015, it appears that the U.S. economy continued to contract in February 2015.

We're basing that assertion on the number of publicly-traded U.S. companies that announced they would be reducing their cash dividend payments to their shareholders during the month of February 2015. With 38 companies taking that action, the number is lower than the 57 firms that took similar actions in January 2015, but is still well elevated above the number that would appear to correspond to a shrinking economy.

Monthly Number of Public U.S. Companies Announcing Dividend Cuts, 
January 2004 through Present (February 2015)

We believe that the number of companies cutting their dividends in February 2015 is a better indicator of the current level of distress within the U.S. economy than the higher January 2015 figure, because we suspect that earlier figure was elevated by those companies whose deteriorating business outlook was such that they should have acted to cut their dividends in 2014, but delayed until the new year.

Speaking of which, we think we've identified most of the entities whose stocks trade on the NYSE or NASDAQ stock market exchanges, using data from Seeking Alpha's Market Currents reports (filtered for Dividends) and the Wall Street Journal's daily listing of Dividends Declarations. The table below presents the full list that we were able to assemble from these sources:

Publicly Traded U.S. Companies Cutting Dividends in February 2015
Date Company Symbol Old Dividends per Share New Dividends per Share Percent Change
2-Feb-2015 North Eur Oil Royalty Tr NRT $0.39000 $0.35000 -10.3%
2-Feb-2015 EV Energy Partners EVEP $0.77400 $0.50000 -35.4%
4-Feb-2015 EV Energy Partners LP EVEP $0.77400 $0.50000 -35.4%
4-Feb-2015 Nuveen Lgn/Sh Cmdty TR Fd CTF $0.13500 $0.11900 -11.9%
5-Feb-2015 Sabine Royalty Tr UBI SBR $0.28281 $0.27708 -2.0%
5-Feb-2015 Magic Software MGIC $0.09500 $0.08100 -14.7%
6-Feb-2015 Alon USA Partners L.P. ALDW $1.02000 $0.70000 -31.4%
6-Feb-2015 Chesapeake Granite Wash CHKR $0.50790 $0.44960 -11.5%
6-Feb-2015 ECA Marcellus Trust I ECT $0.20300 $0.18000 -11.3%
6-Feb-2015 Evolution Petroleum EPM $0.10000 $0.05000 -50.0%
6-Feb-2015 STRATS Sers 2006-1 P&G . Ser 2006-1 GJR $0.01570 $0.01535 -2.2%
6-Feb-2015 STRATS Tr Allstate 2006-3 GJT $0.01752 $0.01708 -2.5%
9-Feb-2015 Northern Tier Energy LP NTI $1.00000 $0.49000 -51.0%
9-Feb-2015 Whiting USA Trust I WHX $0.50934 $0.28308 -44.4%
9-Feb-2015 Whiting USA Trust II WHZ $0.64201 $0.32726 -49.0%
10-Feb-2015 Medley Capital MCC $0.37000 $0.30000 -18.9%
10-Feb-2015 Oaktree Capital Group OAK $0.62000 $0.56000 -9.7%
10-Feb-2015 PPLUS FR Call Ser GSC-2 PYT $0.19583 $0.19167 -2.1%
11-Feb-2015 Fifth St Finance FSC $0.09170 $0.06000 -34.6%
11-Feb-2015 KKR KKR $0.45000 $0.35000 -22.2%
12-Feb-2015 Ellington Financial EFC $0.25278 $0.25000 -1.1%
12-Feb-2015 SunTr Banks Dep. Shs STIA $0.77000 $0.65000 -15.6%
12-Feb-2015 Pengrowth Energy PGH $0.04000 $0.02000 -50.0%
13-Feb-2015 Deswell Industries DSWL $0.05000 $0.03500 -30.0%
18-Feb-2015 Cross Timbers Royalty Tr CRT $0.16025 $0.15170 -5.3%
18-Feb-2015 Hugoton Royalty Tr Un HGT $0.03968 $0.03609 -9.0%
18-Feb-2015 Permian Basin PBT $0.03673 $0.03146 -14.3%
19-Feb-2015 MetLife Floating Ser A META $0.25278 $0.25000 -1.1%
20-Feb-2015 CVR Energy CVI $0.75000 $0.50000 -33.3%
20-Feb-2015 CVR Refining L.P. CVRR $0.54000 $0.37000 -31.5%
20-Feb-2015 Dom Res Black Warrior Tr DOM $0.18065 $0.17455 -3.4%
20-Feb-2015 Vanguard Natural Rscs VNR $0.21000 $0.11750 -44.0%
26-Feb-2015 Mesa Royalty Tr MTR $0.16336 $0.07262 -55.5%
26-Feb-2015 Pacific Coast Oil Trust ROYT $0.03212 $0.00614 -80.9%
26-Feb-2015 Safe Bulkers SB $0.04000 $0.02000 -50.0%
28-Feb-2015 Full Circle Capital FULL $0.06700 $0.03500 -47.8%
28-Feb-2015 Lamar Advertising Co LAMR $0.84000 $0.68000 -19.0%
28-Feb-2015 TICC Capital Corp TICC $0.29000 $0.27000 -6.9%

The list predominantly consists of small, oil industry or other natural resource extraction-related firms, which is connected to the large and so-far sustained decline in global oil prices that began in July 2014 that has negatively affected their revenues. There are also a number of financial firms on the list that have also declined with these industries, along with a sprinkling of firms in other industries, such as software and advertising.

That these firms are small is a key reason why stock market indices have not followed suit. The dividend cuts represented by these firms simply are not big enough to even move the needle for market capitalization weighted indices like the S&P 500.

That is perhaps surprising considering how dramatically the index' expected future earnings per share through 2015 has changed over the past three months. However, that can be easily explained as most larger companies operate with greater margins of safety that allow them to absorb volatility in their expected earnings without cutting promised dividends, at least in the short term, which is why their stock prices haven't collapsed along with their projected earnings. Which is just what we should expect to happen since expectations for dividends per share, and not earnings, are the fundamental driver of stock prices.

So far, those cuts in expected future earnings haven't really transformed into cuts in expected future dividends. What they do represent however is a much more difficult business environment for the U.S. oil industry, where the distress is forcing dramatic cuts to extraction and to exploration activities, which is already negatively impacting other businesses that support the industry as these companies are instituting massive cuts to their spending as they struggle to remain solvent.

Under U.S. law, firms that will be laying off significant numbers of workers must provide their affected employees at least 60 days of notice in advance of the layoffs taking effect. Since January and February 2015 has seen many announcements of such mass layoffs in the industry, which will extend beyond mere oil workers, we should see a considerable increase in the number of Americans filing initial unemployment insurance claims in March and April 2015 should the recent rebound in oil prices not prove to be sufficient to forestall tens of thousands of pending layoffs in the industry.

Data Source

Standard & Poor. Monthly Dividend Action Report. [Excel Spreadsheet]. Accessed 2 March 2015.

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