Unexpectedly Intriguing!
May 4, 2015

According to Standard & Poor's Monthly Dividend Action Report [Excel Spreadsheet], the relative health of the private sector of the U.S. economy improved in April 2015 compared to the three preceding months. However, the number of U.S. firms that announced that they would be cutting their future dividends is still consistent with recessionary forces being present in the U.S. economy.

Monthly Number of U.S. Publicly-Traded Firms Announcing Dividend Cuts, 2004-01 through 2015-04

Compared to 2015-Q1, where we believe the U.S. economy contracted, the 18 firms that S&P reported to have cut their future dividend payments suggests that the economy experienced positive but very sluggish economic growth during the first month of 2015-Q2.

That early assessment is so far backed up by the Federal Reserve's GDPNow near-real time economic indicator:

Latest forecast — May 1, 2015

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2015 was 0.8 percent on May 1, down slightly from 0.9 percent on April 30. The nowcast for second-quarter real nonresidential structures investment growth fell to -20 percent following this morning's construction spending report from the U.S. Census Bureau.

Atlanta Federal Reserve GDPNow, Snapshot 1 May 2015

By comparison to the Fed's GDPNow indicator, which continuously incorporates new data from multiple sources as it is reported, the number of companies that announce that they are cutting their dividends each month is a much simpler measure of the state of the private sector of the U.S. economy. We should note that in the absence of changes to U.S. tax policy that affects dividends and capital gains earned from investments, firms only take this action when they expect that their future business outlook has soured to the point where they expect that they will lack the earnings and cash flow necessary to support making cash dividend payments to their shareholders at the levels that they were previously promised.

Speaking of which, our very recently developed real-time economic health indicator using daily dividend cut announcements would suggest a more negative outlook for the U.S. economy.

Cumulative Announced Dividend Cuts in U.S. by Day of Quarter, 2015, through 1 May 2015

Here is the list of 33 firms that we compiled from information posted by Seeking Alpha's Market Currents or the WSJ's Dividend Declarations database to have cut their dividends during the month of April 2015.

Publicly Traded U.S. Companies Cutting Dividends in February 2015
Date Company Symbol Old Dividends per Share New Dividends per Share Percent Change
1-Apr-2015 BreitBurn Energy Partners BBEP $0.08330 $0.04166 -50.0%
2-Apr-2015 TN Vlly Athr Pwr Bds 99 A TVE $0.24719 $0.21000 -15.0%
3-Apr-2015 Sabine Royalty Tr UBI SBR $0.44414 $0.27658 -37.7%
6-Apr-2015 BP Prudhoe Bay Royalty Trust BPT $2.68800 $0.99890 -62.8%
7-Apr-2015 MV Oil Trust MVO $0.61000 $0.25500 -58.2%
13-Apr-2015 Goldman Sachs Pfd. A GS+A $0.23958 $0.23438 -2.2%
13-Apr-2015 Goldman Sachs Pfd. C GS+C $0.25556 $0.25000 -2.2%
13-Apr-2015 Goldman Sachs Pfd. D GS+D $0.25556 $0.25000 -2.2%
14-Apr-2015 Bank of America Dep pfd E BACE $0.25556 $0.24722 -3.3%
14-Apr-2015 Bank of America Dep pfd 2 BMLH $0.19167 $0.18542 -3.3%
14-Apr-2015 Bank of Am Dep Ser 4 BMLJ $0.25556 $0.24722 -3.3%
14-Apr-2015 Bank of America Dep pfd L BMLL $0.25556 $0.24722 -3.3%
20-Apr-2015 Dorchester Minerals DMLP $0.48578 $0.30655 -36.9%
20-Apr-2015 General Finance 9% Pfd. C GFNCP $2.30000 $2.22500 -3.3%
20-Apr-2015 LRR Energy LRE $0.49750 $0.18750 -62.3%
21-Apr-2015 Alamos Gold AGI $0.10000 $0.03000 -70.0%
21-Apr-2015 Hugoton Royalty Tr Un HGT $0.01838 $0.00742 -59.6%
21-Apr-2015 Legacy Reserves LP LGCY $0.61000 $0.35000 -42.6%
21-Apr-2015 Mesa Royalty Tr MTR $0.16260 $0.07796 -52.1%
21-Apr-2015 Enduro Royalty Trust NDRO $0.03711 $0.01760 -52.6%
21-Apr-2015 Rhino Resource Partners RNO $0.05000 $0.02000 -60.0%
21-Apr-2015 Teck Resources TCK $0.39300 $0.15000 -61.8%
22-Apr-2015 CONE Midstream Partners CNNX $0.21480 $0.21250 -1.1%
23-Apr-2015 Natural Resource Partners NRP $0.35000 $0.09000 -74.3%
24-Apr-2015 Emerge Energy Services LP EMES $1.41000 $1.00000 -29.1%
24-Apr-2015 Montgomery Street Income Securities MTS $0.28000 $0.15000 -46.4%
27-Apr-2015 American Capital Agency AGNC $0.22000 $0.20000 -9.1%
29-Apr-2015 RPC RES $0.10500 $0.05000 -52.4%
29-Apr-2015 Nordic American Offshore NAO $0.45000 $0.17000 -62.2%
29-Apr-2015 Wynn Resorts WYNN $1.50000 $0.50000 -66.7%
29-Apr-2015 North European Oil Royalty Trust NRT $0.35000 $0.33000 -5.7%
29-Apr-2015 International Shipholding ISH $0.25000 $0.05000 -80.0%
30-Apr-2015 Carlyle Group CG $1.61000 $0.33000 -79.5%

We suspect that the main discrepancy between the number of dividend cutting firms counted as part of this listing and those documented by S&P are the 9 cuts related to the dividends for preferred stock issued by Bank of America, Goldman Sachs, General Finance and the Tennessee Valley Authority. At this phase of our real-time indicator development, we haven't determined if these kinds of reported dividend cuts should be included or not with our listing. Until we can make that determination, we will continue including it, but will identify the questionable dividend cuts.

Subtracting those cuts from of the total, we still have a list of 24 firms that cut their dividends in April 2015, which would fall in our "borderline" region between the slow economic growth associated with recessionary conditions being present in the economy and actual economic contraction.

Of the remaining firms, dividend cuts are still concentrated among small oil or mineral extraction-related businesses that have very low market capitalizations, which accounts for why stock prices for major indices like the S&P 500 have not fallen in response to the recorded dividend cuts. The presence of the economic distress causing those dividend cuts however does explain why the major indices have also not risen significantly during 2015 to date.

Data Sources

Standard & Poor. Monthly Dividend Action Report. [Excel Spreadsheet]. Accessed 1 May 2015.

Seeking Alpha Market Currents. Filtered for Dividends. [Online Database]. Accessed 2 May 2015.

Wall Street Journal. Dividend Declarations. [Online Database]. Accessed 2 May 2015.

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