Deep Dive: These 60 large U.S. companies are ‘susceptible to a dividend cut,’ according to Jefferies

The deadly coronavirus is taking a toll on financial markets around the world. Stock-price declines have been swift and relentless.

Now there is intense pressure for companies to shore up cash reserves, not only by reducing investment and suspending share buybacks, but by cutting dividend payouts.

Jefferies global equity strategist Sean Darby has listed 60 companies in the S&P 500 SPX, -1.60% that he and his colleagues think are “susceptible to a dividend cut.”

Here’s the entire list, followed by explanations and more background from Darby:

Company Ticker Dividend yield Dividend coverage ratio Net debt to equity
General Mills Inc. GIS, -2.46% 3.62% 1.49 177.3%
Evergy Inc. EVRG, -6.87% 3.42% 1.47 117.3%
Sempra Energy SRE, -5.83% 3.48% 1.46 120.0%
Qualcomm Inc. QCOM, -2.00% 3.59% 1.45 74.8%
PPL Corp. PPL, -4.45% 6.43% 1.44 171.9%
American Electric Power Co. Inc. AEP, -4.46% 3.34% 1.42 149.3%
Genuine Parts Co. GPC, +1.89% 4.78% 1.40 114.9%
Consolidated Edison Inc. ED, -3.38% 3.79% 1.38 117.1%
3M Co. MMM, -0.89% 4.27% 1.38 186.1%
International Flavors & Fragrances Inc. IFF, -5.49% 2.78% 1.38 64.3%
PepsiCo Inc. PEP, -4.29% 3.04% 1.37 187.6%
Duke Energy Corp. DUK, -3.09% 4.53% 1.36 130.8%
United Parcel Service Inc. Class B UPS, -4.52% 4.13% 1.33 683.1%
Eversource Energy ES, -6.50% 2.71% 1.33 117.6%
J.M. Smucker Co. SJM, +0.33% 3.18% 1.32 72.9%
Coca-Cola Co. KO, -1.67% 3.64% 1.30 156.3%
Becton, Dickinson and Co. BDX, +3.10% 1.42% 1.30 89.3%
Kellogg Co. K, -1.51% 3.83% 1.25 243.6%
Bristol-Myers Squibb Co. BMY, +2.48% 3.31% 1.20 60.7%
Equity Residential EQR, -1.39% 3.85% 1.15 84.7%
Las Vegas Sands Corp. LVS, -2.35% 7.27% 1.14 132.3%
American Tower Corp. AMT, -5.56% 1.72% 1.13 448.8%
Campbell Soup Co. CPB, -0.80% 3.01% 1.12 759.3%
Federal Realty Investment Trust FRT, -0.52% 5.60% 1.11 121.6%
FirstEnergy Corp. FE, -1.04% 3.85% 1.10 295.2%
Microchip Technology Inc. MCHP, -1.72% 2.13% 1.03 186.8%
Gap Inc. GPS, -5.12% 13.07% 0.96 181.6%
Kinder Morgan Inc Class P KMI, +4.90% 7.54% 0.96 93.4%
Hershey Co. HSY, -3.83% 2.24% 0.96 228.5%
AT&T Inc. T, -3.57% 6.88% 0.93 87.3%
AvalonBay Communities Inc. AVB, -3.24% 4.18% 0.92 67.3%
Extra Space Storage Inc. EXR, -1.02% 3.72% 0.92 179.9%
SL Green Realty Corp. SLG, -6.47% 7.68% 0.91 92.9%
Welltower Inc. WELL, -2.97% 7.38% 0.88 88.9%
Oneok Inc. OKE, +8.83% 18.66% 0.88 204.4%
NiSource Inc NI, -4.26% 3.22% 0.88 159.7%
Boston Properties Inc. BXP, -0.79% 4.22% 0.86 144.5%
Essex Property Trust Inc. ESS, -2.34% 3.68% 0.86 91.1%
AES Corp. AES, -0.44% 4.19% 0.83 306.6%
Simon Property Group Inc. SPG, -2.51% 14.84% 0.82 767.0%
Mid-America Apartment Communities Inc. MAA, -3.83% 3.73% 0.79 70.9%
FedEx Corp. FDX, -2.45% 2.09% 0.79 86.0%
Alexandria Real Estate Equities Inc. ARE, -5.25% 2.85% 0.79 67.5%
Kimco Realty Corp. KIM, -4.26% 11.09% 0.72 106.8%
Broadcom Inc. AVGO, -1.25% 5.41% 0.64 111.1%
Amcor PLC AMCR, -1.93% 5.64% 0.63 97.0%
Equinix Inc. EQIX, -3.15% 1.65% 0.61 129.0%
Regency Centers Corp. REG, -3.80% 5.96% 0.61 64.0%
Molson Coors Beverage Co. Class B TAP, -3.20% 5.66% 0.57 63.5%
Digital Realty Trust Inc. DLR, -0.64% 3.20% 0.55 100.7%
Realty Income Corp. O, -5.74% 5.26% 0.51 81.1%
Newell Brands Inc NWL, -2.64% 6.74% 0.47 121.1%
Williams Companies Inc. WMB, +2.39% 11.58% 0.47 135.7%
UDR Inc. UDR, -3.13% 3.82% 0.46 111.1%
Dominion Energy Inc D, -6.01% 4.90% 0.46 112.3%
Crown Castle International Corp. CCI, -2.47% 3.24% 0.39 226.3%
Iron Mountain Inc. IRM, -4.23% 9.96% 0.38 711.8%
Ventas Inc. VTR, -4.28% 11.01% 0.37 113.7%
Wynn Resorts Ltd. WYNN, -1.49% 6.55% 0.31 533.9%
Healthpeak Properties Inc. PEAK, -2.05% 6.08% 0.06 95.5%
Source: Jefferies

You can click on the tickers for more about each company.

You may have to scroll to see all the data.

The table is sorted by declining dividend coverage ratio, which was calculated by the Jefferies analysts by dividing the firm’s estimated earnings for the companies over the next 12 months by the expected dividend payouts based on the current dividend rates. A higher coverage ratio is better. However, a high ratio of net debt to equity is of concern. The net-debt-to-equity ratio was calculated by subtracting cash from debt and dividing by equity.

When asked in an email why he used earnings instead of free cash flow for the dividend coverage ratio, Darby replied: “Many companies will smooth dividend payments, so if we look at earnings measures, we can get an idea of how confident they are about future payments.”

One company that would have made Darby’s list was Macy’s M, -8.57%. However, the retailer suspended its dividend March 20 after temporarily closing all of its stores March 17. Macy’s placed the “majority” of its employees on furlough this week.

Debt-market pressure

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law by President Trump on March 27. Companies that borrow from the federal government will be unable to pay dividends for a year after the loans have been repaid in full.

Of course, companies that don’t receive federal assistance will be able to continue paying dividends and even buying back shares. But in this new climate, management teams have to be careful.

“As companies become more aware that they are running their businesses for the bond holders (and credit markets) rather than for the equity investors, their focus will turn to managing cash rather than earnings,” Darby wrote in his report March 30.

He explained that debt issuers with sub-investment-grade ratings (below BBB) appeared not to have access to the Federal Reserve’s Primary Market Corporate Credit Facility (PMCCF) or its Secondary Market Corporate Credit Facility (SMCCF), which were established March 23.

Darby went further, pointing out that the ratings firms might cut their ratings for BBB-rated bond issuers, making them likely to lose access to those programs.

So there are all sorts of reasons for companies to think ahead and shore up cash any way they can, by suspending share buybacks, cutting capital expenditures and cutting or suspending dividends.

In a report listing large-cap stocks with “safe dividends,” Goldman Sachs analyst Cole Hunter predicted dividends for the S&P 500 would decline by 25% in 2020.

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