Dividend stocks can be attractive options for long-term investors, in part because of the recurring income they can generate. But investors should remember that dividend payments are not a guarantee, regardless of a company’s distribution track record. Investors should consider a company’s future growth prospects as part of their analysis of whether to invest for the long term, even in dividend stocks.
Three stocks that made drastic changes to their dividend payments this year that surprised some investors Estee Lauder (NYSE:EL), Trust medical properties (NYSE: MPW)And Intel (NASDAQ: INTC). Here’s why these cuts happened, and why the cuts may not have been all that surprising.
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In October, cosmetics company Estée Lauder withdrew its forecast for the year based on what it saw in the troubling Chinese market. It also nearly halved its dividend. The cut comes as the struggling company also has a new CEO taking over, Stéphane de La Faverie, to right the ship.
A quick look at the stock’s payout ratio makes it clear why a dividend cut might not have been all that surprising.
EL payout ratio data by YCharts
Deteriorating economic conditions, especially in China, are weighing on business, with Estée Lauder posting a net loss over the past two quarters. Until that situation improves, it will be difficult to determine whether the company can justify the payment each pay no dividends at all to its shareholders.
For now, the dividend remains intact and yields 2%, but investors shouldn’t assume there won’t be another cut in the future.
One company that has cut its dividend several times in a short period of time is the Real Estate Investment Trust (REIT), Medical Properties Trust. The REIT focuses on properties related to the healthcare sector, and like any other sector, its operations will depend on the strength of its tenants.
Unfortunately, Medical Properties’ portfolio includes several troubled tenants, including Steward Health, which recently filed for bankruptcy protection. Although Medical Properties recently transitioned from Steward Health, there are still questions about the company’s operations and how strong the company will be in the future. The REIT has been selling off assets, and with a smaller portfolio it may not be able to pay even a reduced dividend. Its current quarterly payout of $0.08 is less than a third of the $0.29 it paid to shareholders a year and a half ago.
Impairments have hit the company hard lately, but even taking these out of the equation, it’s hard to ignore how much worse the company is currently doing. Through the first nine months of the year, the company’s normalized operating funds totaled $375 million – about half the $733 million it reported in the same period a year ago. Even after two dividend cuts in less than two years, investors should be cautious, as it’s entirely possible that Medical Properties’ dividend will fall even further.
Computer company Intel not only cut its dividend; it suspended it completely earlier this year. Company CEO Pat Gelsinger said the move was necessary due to liquidity needs and so the company could “support the investments necessary to execute our strategy.” Intel has invested heavily in its foundry operations, which has been a challenge. In the company’s most recent quarter, which ended Sept. 28, the foundry company posted an operating loss of $5.8 billion — more than four times the $1.4 billion loss it reported a year earlier.
Balancing an aggressive growth strategy while trying to pay a dividend can be a challenge, especially for a company like Intel that doesn’t generate huge profits. Intel has posted an operating loss for three quarters in a row, and with a long road ahead, investors shouldn’t expect the company to return to dividend payments anytime soon.
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David Jagielski has no position in the stocks mentioned. The Motley Fool holds positions in and recommends Intel. The Motley Fool recommends the following options: Short February 2025 $27 calls on Intel. The Motley Fool has a disclosure policy.
Dividends are never a guarantee. These 3 stocks made huge cuts to their payouts this year, originally published by The Motley Fool
