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False Red Flags And Dividend Myths

Published Thu, 31 Oct 2019 09:16:47 -0400 on Seeking Alpha

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In recent months I have noticed a heightened apprehension around 2 concepts:
Debt maturity Elevated dividend yields Like many concerns, there is a grain of truth here. In some instances, debt maturity can be an accelerant of a company’s troubles and an elevated dividend yield can be a sign that a stock is higher risk. However, these concerns are being misappropriated and turned into blind fear. The market is selling off stocks with elevated yields or upcoming debt maturity regardless of whether there is an underlying problem.
In particular I have seen warnings about companies with upcoming debt maturities on the basis that free cash flow is not sufficient to cover the balloon payment. Papadatos suggests that Macerich (MAC) will have to cut its dividend in order to handle the upcoming debt maturities. I would like to offer a rebuttal, not specifically to his article, but to the broad and growing misunderstanding of debt maturity.
Cashflows will almost never be sufficient to cover significant debt maturities and that is true of healthy companies with strong balance sheets. Thus, cashflows not covering debt maturity is not a red flag nor is it even a yellow flag, it is normal.
Cashflows need to cover interest expense and MAC passes this test handily with 3.6X recurring EBITDA to interest + preferred expense.
Debt maturities are handled through refinancing, not cashflows.... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
WP GLIMCHER 4.18   24.6 0.17 1.00 24.10
AMERICAN CAPITAL AGENCY 15.64   0.0 -1.54 1.92 12.21
CORECIVIC 18.06   12.0 1.51 1.76 9.83
MACERICH 33.33   43.9 0.76 3.00 8.91

WP GLIMCHER - WPG
WP GLIMCHER - WPG  


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