Safety Net Kept You Safe From Dividend Cuts in 2023

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I hope your 2024 is off to a great start.

2023 was a stellar year for Safety Net. It did exactly what it was designed to do: It let you know that your dividends with “A” and “B” ratings were safe, and it warned you about your dividends with “D” and “F” ratings before they were cut.

In one case, it warned you within minutes of the announcement.

On June 21, I said “another dividend reduction is a sure thing” for mortgage real estate investment trust Two Harbors Investment (NYSE: TWO).

Within 20 minutes of the column hitting your inboxes, Two Harbors slashed its dividend by 25%.

Something similar happened on September 27. I gave Global Net Lease (NYSE: GNL) a “D” rating for dividend safety, cautioning investors, “The company’s management may consider its income to be stable, but I suspect shareholders soon won’t be able to say the same.”

Soon turned out to be very soon. Five days later, the company reduced its dividend by 12%.

The Results

During the year, nine stocks received an “A” grade for dividend safety. Not one of them cut its dividend. In fact, six of them raised their dividends. None of the eight stocks with “B” ratings or the eight stocks with “C” ratings decreased their dividends either.

However, as we move to the lower grades, we start to see some cuts.

Two of the nine stocks with “D” ratings reduced their dividends after we issued our grades, while six of the nine with “F” ratings did so.

In fact, the average changes in the dividends during the year lined up exactly how you’d expect based on their ratings.

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One of the few stocks with an “F” rating that did not lower its dividend is one of the most commonly requested stocks for the Safety Net column: AGNC Investment Corp. (Nasdaq: AGNC).

I reviewed AGNC twice in 2023 – once in January and again in July.

In January, I actually said, “Investors can probably bank on the dividend this year as long as [net interest income] comes in near where it’s expected.” However, I warned that because of the company’s track record of cutting the dividend when times get tough, there would be another reduction the next time NII turned lower.

The theme was the same six months later. The company’s NII was still fine in July, but its nine dividend cuts in 12 years remained a sure sign that another cut was coming at some point.

Will it be in 2024?

This year, NII is forecast to come in at $2.5 billion, up from an expected $2 billion in 2023. And that $2 billion figure is significantly higher than the $1.4 billion projection from back in July.

Based on its current share count and its $0.36 per share quarterly dividend, the company would pay out $895 million in dividends in 2024.

So once again, AGNC can afford its dividend.

But nine cuts in 12 years is about as bad a dividend history as I’ve seen. A stock with that many dividend cuts can’t receive anything other than an “F” rating, because management has made it darn clear that it will cut the dividend when it needs to.

So this 14.5% yielder’s dividend is still at great risk of being cut. As was the case last year, it may not happen imminently, but the dividend will be cut at some point in the future.

Dividend Safety Rating: F

Dividend Grade Guide

The Safety Net column is here to help make sure you don’t get blindsided by a dividend cut. It did its job in 2023, and I expect it to do the same in 2024.

P.S. If you have a stock whose dividend safety you’d like us to analyze, leave the ticker symbol in the comments section below.

You can also take a look to see whether we’ve written about your favorite stock recently. Just click on the word “Search” at the top right part of the Wealthy Retirement homepage, type in the company name and hit “Enter.”

Also, keep in mind that Safety Net can analyze only individual stocks, not exchange-traded funds, mutual funds or closed-end funds.

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