It’s every investor’s worst nightmare. Yes, I’m talking about the dreaded dividend cut.
Fortunately, by doing a little analysis ahead of time, investors can avoid many dividend cuts before they happen, allowing them to move onto the next investment idea with at least most of their capital intact.
Here are three companies in danger of cutting their generous yields.
The first is Cominar Real Estate Investment Trust (TSX:CUF.UN). Cominar is dealing with debt issues brought on by a 2015 acquisition, and the company has earned less than it pays out so far in 2016. Adjusted funds from operations for the company’s first three quarters of 2016 were $1.06 per share, while it paid out $1.10 in dividends. That’s a 10.4% yield.
The company also just issued $200 million worth of additional shares, which will put more pressure on the dividend.
Another scary dividend is IGM Financial Inc.’s (TSX:IGM) 5.9% payout. Although the company does earn enough to cover the payout, I’m worried that the mutual fund business--which is a big driver of earnings--will decline, taking the bottom line down with it.
Finally, many investors are becoming more and more bearish on Canada’s largest privately-held mortgage default insurance company Genworth MI Canada Inc. (TSX:MIC).
New mortgage rules have really sapped the market, which will lead to lower premiums. Persistently low interest rates aren’t helping either, but at least rates are beginning to head higher. Additionally, many investors are nervous about the impact a prolonged housing downturn will have on Genworth’s bottom line.
But it’s not all bad news. Genworth’s 5.4% yield is still easily covered by earnings, and investors have been worried about the housing market for years now. The doom predicted could easily be avoided.
