| An Oversize Dividend That Was Full of Ship In November, Marc reviewed the dividend safety of Israeli shipping company Zim Integrated Shipping (NYSE: ZIM). At the time, the company had paid out $27.10 per share over the prior 12 months, giving it a mind-blowing 100% dividend yield. Marc assured readers it was real. He was also certain that it wouldn't last. In fact, he gave it an "F" rating and called a dividend cut "almost a sure thing." Once again, Marc was right. On the very day that his Safety Net article was published, Zim declared a $2.95 per share quarterly dividend. It was 38% lower than the $4.75 per share dividend it distributed in the prior quarter. Now, although Marc was right, he wasn't necessarily psychic. Zim has a publicly stated dividend policy that anyone can read. The shipper pays out 20% to 30% of its net income during the first three quarters of the year with a possible step-up to 50% in the fourth quarter. Net income is expected to fall significantly over the next two quarters, which means the dividend will decline too. As long as Zim remains profitable, investors can expect to receive a healthy dividend - just not as large as it was over the last 12 months. This is a good example of a very important lesson that all dividend investors must learn... If a dividend yield looks too good to be true, it probably is. "D" Is for Dodgy Dividend It's not just the "F"-rated stocks dividend investors need to watch out for. Dividends with "D" ratings aren't safe either. "D"-rated Chimera Investment Corp. (NYSE: CIM) proved my point when it cut its quarterly dividend by 30% in September from $0.33 per share to $0.23 per share. Shares of the mortgage real estate investment trust (REIT) plunged 9.5% on the news. Marc warned readers in March that he suspected another dividend cut may be on the horizon. Mortgage REITs borrow money in the short term and lend it out in the long term at higher rates. The difference is called net interest income (NII), and it's the way we determine a mortgage REIT's ability to afford its dividend. Chimera's NII is inconsistent. While Marc said he would prefer to see it grow every year, Chimera has been unable to do that. He also said that the mortgage REIT has a "dodgy dividend history" with a habit of cutting the dividend when times get tough. Times got tough again... and Chimera made the cut to its dividend. Well, that's all for 2022. Marc will be back next week with a new Safety Net analysis. I wish you all a happy, healthy and prosperous 2023! Good investing, Kristin | 
No comments:
Post a Comment