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Ladies and Gentlemen

publication date: Nov 8, 2013
author/source: Brian Nelson, CFA

What you are witnessing with the Valuentum Dividend Cushion is not a normal occurrence in finance. I personally have never seen a metric with such a high level of efficacy in predicting dividend cuts.

Last week, the Valuentum Dividend Cushion not only added CONSOL Energy (CNX), but it also added Weight Watchers (WTW) to the growing list of firms that it highlighted the significant risk of a dividend cut before it happened. Weight Watchers suspended its quarterly cash dividend to generate annual cash savings of about $39 million October 30. Both CONSOL Energy and Weight Watchers were highlighted in the October 1 edition of our Dividend Growth Newsletter (on page 12) as yields to avoid (download pdf here).  

A Valuentum Dividend Cushion score below 1 indicates heightened risk, and a Valuentum Dividend Cushion score below 0 is severe risk. You can find the list of ‘Dividend Yields to Avoid’ here.

The following firms’ dividend cuts were predicted by the Valuentum Dividend Cushion in real-time and in full view of members: Weight Watchers (WTW), CONSOL (CNX), SuperValu (SVU), Roundy’s (RNDY), Dover Downs (DDE), Strayer (STRA), Exelon (EXC), Cliffs Natural (CLF), Pitney Bowes (PBI), CenturyLink (CTL), and J.C. Penney (JCP). This provides significant empirical evidence backing the substantial academic support for the metric.

If you are not monitoring the Valuentum Dividend Cushion score of constituents in your Dividend Growth portfolio, I encourage you to do so. The metric won’t change much on a monthly basis, but it does change quite frequently over time, especially in cases when capital structures are altered or when the trajectory of future free cash flows is changed. The Valuentum Dividend Cushion score can be found in the Dividend Report of each firm. Though no metric is perfect, I have yet to find one that is so good at protecting income portfolios from devastating dividend cuts.

Thank you for your membership.

Brian Nelson, CFA
President, Equity Research

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