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.
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.
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.
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.
Labels: dividends, recession forecast
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