Editor’s Note: Two weeks ago, Marc warned that General Electric (NYSE: GE) would likely cut its dividend. On Monday, the company announced a $4.1 billion cut, the largest in U.S. history outside of the financial crisis.
Speaking of predicting dividend cuts…
In December 2015, I covered CYS Investments (NYSE: CYS), which invests in mortgage-backed securities. I concluded the article by saying, “I’d be shocked if [the dividend] isn’t reduced again in the next 12 to 24 months.”
CYS lowered its dividend six months later.
Let’s see if things have stabilized for the company…
In the first nine months of the year, CYS’ net interest income (NII) was $149 million. It paid $91 million in dividends. However, it’s expected to pay out more than $172 million by Bloomberg for the full year.
At the current pace, NII should cover the dividend – but not by much.
The problem is that NII will likely fall going forward. There are no NII estimates for next year or 2019, but both earnings and free cash flow are projected by Bloomberg to fall.
That’s not a guarantee that NII will drop, but if the trend for those two metrics is down, it’s likely that NII will follow.
Look Out Below!
CYS is a serial dividend cutter. The company has reduced its regular dividend every year since 2011 (even though it paid a $0.52-per-share special dividend in 2012)…
I avoid companies that cut their dividend because if they cut it once, they won’t be shy about doing it again. Clearly, CYS’ management has no problem slashing its payout to shareholders.
CYS’ NII barely covers the dividend and very likely will not next year. Growth is headed the wrong way, and the company cuts the dividend every year.
I don’t see why 2018 would be any different. Look for CYS to lower its dividend next year to below $1.
Dividend Safety Rating: F
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