Endangered Dividends List

This dividend declaration season, five companies announced dividend distribution cuts. All operate in more leveraged sectors of the energy industry. The chief catalyst was the autumn retreat in benchmark oil prices, coupled with some extremely wide differences in regional pricing.

American Midstream Partners (NYSE: AMID) will eliminate its distribution this month. That follows a 75 percent cut announced in July, which was preceded by a more modest 12.7 percent trimming two years earlier.

The immediate catalyst is a restated credit agreement, which based on expected fourth quarter financials would preclude management’s ability to pay a distribution.

Altagas Ltd (TSX: ALA, OTC: ATGFF) cut its monthly dividend to 8 cents Canadian from the previous 18.25 cents, starting with the January 15 payment. We highlight the move as part of a strategic reset by management in the December 13 Alert “Altagas Resets for a Hostile Capital Market.” Kinder Morgan Canada (TSX: KML, OTC: KMLGF) announced its 2019 financial projections, which reflect the now closed sale of the Trans Mountain pipeline system to the Canadian government.

The latest two EDL members to announce dividend reductions are Bonterra Energy (TSX: BNE, OTC: BNEFF) and Sanchez Midstream Partners (NYSE: SNMP).

Canadian oil and gas producer Bonterra is slashing its monthly payout from 10 cents Canadian to just a penny a share. That’s a direct consequence of a decline in its realized selling price for oil to just CAD21.50 per barrel from CAD77.20 since the end of the third quarter.

Buckeye Partners (NYSE: BPL) is cutting its quarterly distribution for the first time in its 30-year plus history, from $1.2625 to 75 cents per unit. That’s a -40.6 percent reduction starting with this month’s payment, an amount right in line with our expectation.

Endangered Dividends List companies are vulnerable for different reasons like cash flow, elevated debt levels, revenue pressure etc. This edition of the EDL table is expanded by five names since the previous issue of EIA.

Endangered Dividends List companies are vulnerable for different reasons like cash flow, elevated debt levels, revenue pressure etc.

Ferrellgas Partners (NYSE: FGP) has exhausted a $50 million reserve for paying distributions. Under its debt covenants, the propane distributor MLP will have to suspend its distribution entirely, until the consolidated fixed charge coverage ratio recovers.

Our EIA Endangered Dividends List highlights companies in our coverage universe where dividends are at elevated risk of being cut for one or more of the following reasons:

Our EIA Endangered Dividends List highlights companies in our coverage universe where dividends are at elevated risk of being cut for one or more of the following reasons:

• Cash flow coverage of distributions is inadequate.
• Elevated debt levels with imminent refinancing needs.
• Revenue pressure triggered by weakness for at least one key asset.
• Inability to access the equity market on favorable terms to fund capital spending, forcing management to utilize more internally generated cash flow.
• Exposure to volatility in commodity margins from either rising or falling prices of raw materials.
• Aggressive general partners anxious to buy in limited partners’ cash flows at discounted prices.
• Regulatory reversals.
• Expiring contracts with little hope for renewals at comparable rates.

Most of the companies on our list suffer from more than one of these afflictions.