Those cash-flowing equities with yields are going to cut dividends simply because there’s no other outlet. If you’re depending on a stock for their yield, one must have a good grip on whether they can sustain it from a balance sheet perspective.
I won’t even cover the oil and gas sector – those that had dividends will surely lower or eliminate them (SU and CNQ may be exceptions here, but everybody else – good luck!). In Canada, nobody will make money with WCS at US$20/barrel. Interestingly enough, in the gas world, AECO/Dawn/Henry Hub are holding steady.
Chemtrade Logistics (TSX: CHE.UN) announced they are dropping their distribution from $1.20 to $0.60/unit per year. This wasn’t surprising to me since even at the current rate they are still questionable.
Melcor (TSX: MRD) decreased their quarterly payment from $0.12 to $0.10/share; as their property portfolio is entirely Alberta-centric they are secondary roadkill in the oil/gas slaughter.
Anything in the equity markets that are trading at double-digit yields – give the balance sheets a very careful look, and ask whether the cash flow, accounting for a decrease in the economic landscape, will be able to provide sufficient coverage.
There will be a few equities with double digit yields that will recover and maintain their dividends, but it will be few and far between. However, if you do manage to snag them, and the overall economy recovers, you will be the recipient of a yield compression and continue receiving distributions at your original (low) cost basis. High risk, high reward.
Special dividends should be more common rather than the burden of regular dividends.