3 Dividend Darlings in Danger Zone

07/09/2012 12:15 pm EST


Roger Conrad

Chief Analyst/Managing Partner, Capitalist Times

Energy prices and economics have hammered some essential services companies, and one of the long-time favorites is now an outright sell, writes Roger Conrad of Utility Forecaster.

Oil’s nearly 30% drop since early March has forced the hand of Enerplus (ERF). The company is slashing its monthly payout in half to 9 cents per share as of the July payment.

On the plus side, the company is sticking to a C$800 million capital budget for 2012 to increase output by 10%, mainly from light oil in the Bakken and natural gas liquids in the Marcellus Shale.

Unfortunately, credit lines are nearly half drawn, while gas is still more than half of total production and entirely unhedged. Consequently, the dividend is still at risk to a further retreat in oil prices.

Despite a nearly 50% drop in the stock this year, Enerplus is a sell.

CEOs of France Telecom (FTE) and Portugal Telecom (PT) are hinting strongly they’ll reduce dividends sometime in the next 12 months, using cash to pay off maturing debt.

The dividend cuts are well priced in. And despite the turmoil in their home countries, both companies are maintaining margins and revenue—Portugal Telecom because of its large operations in Brazil.

If anything’s for sure in Europe now, it’s that big telecoms and electrics will be left standing when the crisis ends. That’s worth a hold rating for both France Telecom and Portugal Telecom, though volatility will be the rule.

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