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Endangered Dividends List: Heed This Early Warning System

By Roger S. Conrad on Jul. 28, 2018

These distribution cuts and investor reaction to them are serious red flags for all Endangered Dividends List companies. These face elevated risk for one or more of the following reasons:

  • Cash flow coverage of distributions is inadequate.
  • Elevated debt levels with imminent refinancing needs.
  • Weakness in at least one key asset pressuring revenue.
  • 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.
  • Negative shifts in state and/or federal regulation of operations.
  • Expiring contracts with little hope for renewals at comparable rates.

This earnings reporting season, a growing number of management teams appear ready to take drastic action to preserve cash.

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