At the start of the pandemic-triggered economic crisis, a large portion of stocks in the high-yield sectors slashed or suspended dividend payments. For example, Hoya Capital Real Estate reports that 31 of 42 mortgage real estate investment trusts (REITs) cut or suspended dividends from March through June.
Other sectors, such as equity REITs, business development companies (BDCs), and energy midstream companies, had large numbers of dividend cuts. Now, almost half a year after the pandemic kicked the stuffing out of income stocks, I am starting to look for those companies that will bring back higher dividend rates.
There are two main reasons behind the dividend cuts we’ve seen in 2020.
One reason is that the pandemic and related economic shutdown so disrupted a company’s business that the profits and cash flow to pay dividends stopped. An example of this effect is lodging REITs. These REITs own hotels managed by the hotel companies.
Unlike most other REIT sectors, lodging REITs participate in the profits, and in the second quarter, empty hotels meant no profits or cash flow to pay dividends. With continued lack of business travel due to the pandemic, it is unclear when hotels will again be full enough to generate profits and dividends for REIT investors.
The other reason is that the uncertainty brought about by the pandemic pushed companies to slash dividends to retain cash. These are companies that continued to generate revenue and cash flow but were not confident that would continue. With the 2020 second-quarter earnings results, there now is a better picture of the continuing cash flow that could be used to pay dividends. The financial results from these companies show they have the potential to either restore dividends to nearly pre-pandemic levels or to start on a path of steady dividend growth.
Here are three stocks that could soon start to increase dividends.
In late March, finance REIT New Residential Investment (NRZ) cut its dividend by 90%, going from $0.50 per share down to $0.05.
In June, with the next announcement, the dividend was doubled to 10 cents. Second-quarter core earnings came in at $0.34 per share, down from $0.48 reported for the first quarter.
The New Residential business will benefit from the strong housing market. Profits should quickly recover to the 2019 levels of $0.60 per share each quarter.
I expect the dividend increases to continue each quarter.
In April, Golar LNG Partners (GMLP) slashed its dividend by 95%, dropping the $0.4042 quarterly dividend rate down to $0.0202.
On August 14, Golar released its second-quarter financial results; included in the report was the fact that distributable cash flow covered the two-cent dividend by 20 times. That means the company generated enough free cash flow to pay the old 40 cent dividend.
I do not expect Golar to restore the old dividend, but I would not be surprised if they soon boost the rate ten-fold, to around $0.20 per share per quarter.
Also, in April, crude oil pipeline company Plains All American Pipelines LP (PAA) reduced distributions by 50%, down to $0.18 per share. For the 2020 second quarter, Plains reported distributable cash flow (DCF) of $0.41 per share, down from $0.73 for the 2019 second quarter.
With earnings, the company provided full-year DCF guidance of $2.23 per share, down from $2.91 in 2019.
However, the $0.72 annualized dividend is almost four-times covered, so I expect Plains to give a nice dividend increase soon, most likely in January 2021.
MBA: Mortgage Applications Decreased in Weekly Survey; Purchase Apps Lowest Since 1995
From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey
Mortgage applications decreased 6.0 percent from one
week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage
Applications Survey for the we…
Mortgage applications decreased 6.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 29, 2023.Click on graph for larger image.
The Market Composite Index, a measure of mortgage loan application volume, decreased 6.0 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 6 percent compared with the previous week. The Refinance Index decreased 7 percent from the previous week and was 11 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 6 percent from one week earlier. The unadjusted Purchase Index decreased 6 percent compared with the previous week and was 22 percent lower than the same week one year ago.
“Mortgage rates continued to move higher last week as markets digested the recent upswing in Treasury yields. Rates for all mortgage products increased, with the 30-year fixed mortgage rate increasing for the fourth consecutive week to 7.53 percent – the highest rate since 2000,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “As a result, mortgage applications ground to a halt, dropping to the lowest level since 1996. The purchase market slowed to the lowest level of activity since 1995, as the rapid rise in rates pushed an increasing number of potential homebuyers out of the market. ARM loan applications picked up over the week and the ARM share increased to 8 percent, as some borrowers searched for ways to lower their payments.”
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) increased to 7.53 percent from 7.41 percent, with points increasing to 0.80 from 0.71 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
The first graph shows the MBA mortgage purchase index.
According to the MBA, purchase activity is down 22% year-over-year unadjusted.
Strategic Ambiguity Leaves Intervention Question Unanswered, but US Dollar has Steadied
Overview: Dramatic yen price action around the JOLTS
report yesterday after the dollar pierced the JPY150 level spurred speculation
of BOJ intervention….
Overview: Dramatic yen price action around the JOLTS report yesterday after the dollar pierced the JPY150 level spurred speculation of BOJ intervention. Although there has been no confirmation, the strategic ambiguity is helping steady the yen and the dollar more broadly today, even though US yields remain firm. Final PMI readings were a better than the flash estimates and this may also be facilitating the consolidative tone. Most promising, from a technical point of view, is the recovery in sterling, which after taking out yesterday's low is now trading above yesterday's high. Among the G10, only the yen and New Zealand dollar (RBNZ held as widely expected) are slightly softer. Most emerging market currencies are also firmer, including the Polish zloty, where the central bank may cut rates later today.
Asia-Pacific equities fell sharply, with Japan and South Korea off more than 2% (which may help explain the won leading the losing emerging market currencies, off more than 1%). It is the third consecutive losing session for the MSCI Asia Pacific Index. Europe's Stoxx 600 is slightly firmer after losing more than 1% on Monday and again yesterday. US index futures are straddling little changed levels. Benchmark 10-year yields are higher. The 10-year JGB is at new highs, slightly above 0.80%, while European yields are mostly 2-3 bp higher. The 10-year US Treasury yield is pushing above 4.80%. Gold is consolidating after falling to almost $1815 yesterday, the lowest level since March. November WTI could not sustain yesterday's modest upticks and has come back heavier today. It is holding above yesterday's low near $87.75. Demand destruction concerns is offsetting OPEC+ expected confirmation of current output.
Neither Japan nor Australia's final service and composite PMIs change the fundamental picture, though they were better than the initial projections. At 53.8 rather than 53.3 flash reading (down from 54.3 in August), Japan's service PMI matches the lowest since January. The composite reading is at 52.1 rather than the preliminary estimate of 51.8 (52.6 in August). It averaged 52.3 in Q3 after 53.1 in Q2. Australia's services and composite PMI rose back above 50 in September after spending July and August below the boom/bust level. September services PMI stands at 51.8 (50.5 flash estimate and 47.8 in August). The final composite estimate was 51.5 up from preliminary estimate of 50.2 and 48.0 in August. It is the best since May. It averaged 49.2 in Q3 after 51.6 in Q2.
Japanese officials have pushed back against idea that there is an "intervention level" and instead have encouraged the market to focus on volatility. Still, despite yesterday's dramatic swing there still is not confirmation of material intervention, One-week yen vol embedded in the options market jumped to 9.4% yesterday and almost 9.8% today before pulling back to below 9%. It reached the lowest level in around 18 months last week around 6.5%. It was near 22% when the BOJ last intervened in Oct 2022. Three-month implied vol is near 9.9%. The low last week was close to 9%. The year's low was set in mid-June near 8.8%. It was closer to 13.4% in September 2022 and spiked to 14.8% October 21, 2022, when the BOJ intervened.
The dollar pushed above JPY150, where options for almost $800 mln expire today and $1.5 bln expire on Friday. After spiking to JPY150.15, the highest close from 2022, the dollar dropped to about JPY147.45 and many suspect intervention. It may not be known for sure until the end of the month report is released. Last year, the BOJ did not intervene outside of Japan's time zone. It may have checked rates, though there are no reports that it did. With US yields making new highs and the BOJ buying JGBs today, it still does not seem like an opportune time to intervene and the relatively modest vol suggests intervention would not receive much sympathy within the G7 and the EBS volume at time of the "intervention" seemed light. Still, the market has been spooked and the greenback is in a narrow range of about 30 pips on either side of JPY149.00. The Australian dollar was sold a little through $0.6290 yesterday to draw near last November's low near $0.6270. Yesterday's low is holding today, and the Aussie is hovering around $0.6325 in quiet dealings. But it is barely entering the Bollinger Band, where the lower end is found around $0.6320. A break could signal another 1% loss on the way to last October's low around $0.6170. Surprising no one, the Reserve Bank of New Zealand maintained its overnight cash rate target at 5.50% where it has been since May. The New Zealand dollar peaked at the end of last week near $0.6050, the highest since mid-August but sold off Monday and Tuesday to briefly trade below $0.5900. Follow-through selling today took it to almost $0.5870. The year's low was set in early September near $0.5860. The US dollar remains firm against the offshore yuan. It reached CNH7.33 yesterday and is holding below it today. It is trading near CNH7.3150. It was near CNH7.2950 when the mainland holiday began.
The final September EMU services PMI confirmed the first improvement since April. The pace of contraction in services slowed to 48.7 (48.4 flash estimate) from 47.9 in August. Last September it was at 48.8. The same is true of the composite PMI. It now stands at 47.2, rather than 47.1 initial estimate and 48.1 in September 2022. The new news was not so much about the minor revisions to the German (where the services PMI rose above 50 after dipping below it in August) and French flash estimate (44.1 composite from 43.5 preliminary estimate and 46.0 in August), but modest improvement in Italy (composite at 49.2 vs. 48.2) and Spain (50.1 composite, up from 48.6). Separately, the Eurostat reported that retail sales fell by a dramatic 1.2% (volume terms) in the eurozone in August, the biggest decline this year and more than twice what the median forecast in Bloomberg's survey projected.
The UK's final services PMI is at 49.3 rather than the initial estimate of 47.2 and 49.5 in August. It has not risen since April. The composite PMI stands at 48.5 (46.8 flash and 48.6 in August). It averaged 49.3 in Q3, down from a 53.9 average in Q2 and 51.3 average in Q1. The UK economy seemed to have hit an inflection point. The composite moved above the 50 boom/bust level in February and peaked at 54.9 in April and has fallen since and pushed back below 50 in August. Recall that the economy contracted by 0.5% in July, more than twice the decline expected (median forecast in Bloomberg's survey was -0.2%). August's monthly GDP estimate will be reported next week (October 12) amid renewed recession fears.
The euro found support after the US JOLTS report slightly below $1.0450. It found support slightly above it today. Since pushing below $1.05 in the US afternoon on Monday, the euro has not been able rise back above it. A move above the $1.0550 area may be needed to stabilize the tone. The $1.04 area is the next technical objective. There are options for nearly 2 bln euros that expire Friday at $1.0450. Sterling's drop yesterday to almost $1.2050 met the (38.2%) retracement objective of sterling's recovery from September 2022 record low near $1.0350 to the mid-July high around $1.3140. That retracement was $1.2075. The next important technical area is $1.20, which also corresponds to the measuring objective of the head and shoulders pattern. Sterling made a marginal new low today near $1.2035 before bouncing back and trading above yesterday's high (~$1.2100). A potential bullish key reversal is unfolding but the close is critical. To confirm the one-day reversal pattern, sterling must close above yesterday's high. Lastly, after cutting the reference rate by 75 bp last month (to 6.0%), Poland's central bank is expected to deliver another quarter-point cut today. Since last month's rate cut, the Polish zloty has been among the worst performing emerging market currencies, falling by about 3.7% against the dollar and around 1.3% against the euro.
Although many observers have downplayed the JOLTS report, its unexpected strength reported yesterday, helped lift US interest rates and the greenback. Job openings jumped by 7.7% in August, the largest increase since July 2021, to 9.61 mln. The median forecast in Bloomberg's survey was for a small decline. Moreover, the July series was revised higher (to 8.92 mln from 8.83 mln). The focus stays on the US labor market with the ADP estimate due today, Challenger lay-offs tomorrow, and the monthly payroll report on Friday. The median forecast in Bloomberg's survey has crept up to 170k (187k in August). A slowing of job growth was supported to herald the pullback in the US consumer and slow the economy in Q4. August factory orders and another look at durable goods orders are also on tap, but they will likely be overshadowed by the ISM services, which has been running stronger than the services PMI, where the final reading is also due today (50.2 vs 50.5 in August, the lowest since January.
We argued in our monthly outlook that the weak link may not be the US economy or dis-inflation but the financial sector. Remember when banks complained that the low rates squeezed interest income. Since February and March, the increase in rates has weakened bank shares. KBW's two bank share indices (one for large banks and one for regional banks) have been trending lower since late July. Yesterday, they both gapped lower. The regional bank index fell to its lowest level since late June, while the large bank index is at its lowest level since mid-May. Last week's Fed report (H.4.1) showed a small increase in both discount window borrowings ($3.193 bln vs. $3.078 bln) and the Bank Term Funding Program to a new record ($107.715 bln vs. $107.599 bln).
The US dollar's surge against the Canadian dollar extended to CAD1.3735 yesterday, which is about where the trendline off the 2020, 2022 and 2023 highs intersected yesterday. Last week's low was set before Canada's July GDP (flat vs. median forecast in Bloomberg's survey for 0.1% after -0.2% in June) and before US income, consumption and deflator was almost CAD1.3415. The greenback's surge has carried it to its highest level since March and through the upper Bollinger Band (~CAD1.3710). It is consolidating in a narrow range of about CAD1.3695-CAD1.3725 today. A close below CAD1.3660 would confirm the greenback's upside momentum has stalled. That said, the next important chart area is CAD1.3800-15 and then the year's high set on March 10 near CAD1.3860. The greenback's surge and risk-off has overwhelmed the Mexican peso too. The greenback pushed above MXN18.00 for the first time since early May and closed above the 200-day moving average (~MXN17.8245) for the first time since September 2022. Follow-through buying today lifted the US dollar a little above MXN18.2150 before the reversing lower to approached MXN18.00. A break of MXN17.80 would stabilize the technical tone. One take away is that this is not a peso move but a dollar move. For example, the peso and Brazilian real fell by roughly the same amount (-1.6%). Latam currencies, which have been the market's darlings this year, accounted for the five of the six weakest emerging market currencies yesterday, with the South African rand joining them.
US Median Q3 GDP Nowcast Holds Above 3%
Rising interest rates may threaten the “soft landing” outlook for the US economy, but the upcoming preliminary estimate of third-quarter GDP from the…
Rising interest rates may threaten the “soft landing” outlook for the US economy, but the upcoming preliminary estimate of third-quarter GDP from the government still looks set to report that output picked up from Q2.
The median nowcast for GDP via several sources compiled by CapitalSpectator.com indicates growth at 3.2% for the July-through-September period (seasonally adjusted annual rate). That’s substantially up from the 2.1% advance in Q2.
But in a sign of what may be brewing, today’s revised Q3 nowcast is fractionally below the previous update. It’s reasonable to assume that more downside revisions are likely ahead of the Oct. 26, when the Bureau of Economic Analysis will publish its Q3 report for GDP. One factor weighing on the outlook for the remaining Q3 nowcasts: rising Treasury yields.
The recent runup in the 10-year yield lifted the benchmark rate to 4.81% on Tuesday (Oct. 3), the highest since 2007. “I think we’re gonna go to five [percent]” for the 10-year yield, predicts former Pimco bond fund manager Bill Gross.
Upside momentum for the 10-year yield is certainly strong lately. The 50-day average for the rate, after briefly falling below its 200-day counterpart in the spring, has recently rebounded, which implies that the market will continue to reprice this yield higher in the near term.
Meanwhile, Fed officials are signaling that interest rate cuts aren’t on the horizon. In fact, it’s premature to rule out another rate hike, advises Cleveland Fed President Loretta Mester. On Monday she said: “At this point, I suspect we may well need to raise the fed funds rate once more this year and then hold it there for some time as we accumulate more information on economic developments and assess the effects of the tightening in financial conditions that has already occurred,”
Jim Bianco, president of Bianco Research, tells CNBC: “I don’t think we’re near the end of this move in the bond market.”
Higher interest rates are a new headwind for the economy in Q4 and beyond. There’s also a risk that today’s 3%-plus nowcast for the upcoming Q3 report will be revised down ahead of the Oct. 26 release. Given the recent persistence in higher nowcasts vs. Q2, however, it’s likely that growth will match or exceed the previous quarter. But the longer that interest rates rise and/or hold on to current levels, the stronger the case for revising current growth estimates down for Q4.
How is recession risk evolving? Monitor the outlook with a subscription to:
The US Business Cycle Risk Report
recession fed recession gdp interest rates
Eli Lilly to buy radiopharma company Point Biopharma for $1.4B as PhIII readout looms
New single-use plastic ban takes effect in England – here’s why its impact may be limited
Japanese yen edges lower after hawkish BoJ minutes
Bitcoin, Solana products lead first crypto investment inflow since mid-August
The RBA’s battle with inflation: Examining the latest data points
New tool reveals how drugs affect men, women differently — and will make for safer medications
3 Key Relationships to Help Assess Market Direction
New species of cobra-like snake discovered – but it may already be extinct
Target’s answer to Amazon Prime Days is here — these are the top deals
Major Asset Classes | September 2023 | Performance Review
Uncategorized16 hours ago
Cardano stablecoin project gambled away investors’ money before rug: Report
International21 hours ago
Airlines are being hit by anti-greenwashing litigation – here’s what makes them perfect targets
International18 hours ago
Computer model predicts who needs lung cancer screening
International13 hours ago
New robot could help diagnose breast cancer early
Government23 hours ago
Nationwide test of Wireless Emergency Alert system could test people’s patience – or help rebuild public trust in the system
Uncategorized11 hours ago
SEC asks judge to reject Coinbase’s motion to dismiss lawsuit
Uncategorized24 hours ago
Amicus Therapeutics strikes $430m strategic financing deal
International22 hours ago
Exscientia ends cancer study as it focuses on other trials of AI-driven drug candidates