Debt and Dividends

Sorry, but I meant to publish this on Thursday and must have gotten off track.

Last week I spoke about debt ratios. What I want to talk about today is company debt and possible implications on dividends. If you do dividend investing like I do, you should be aware of this.

Long term debt usually comes with a Covenant . Here I have referred you to the definition on Investopedia. Perhaps a clearer answer to what is a Debt Covenant is shown here at Simple Studies.

As an investor you should want to know if the companies you invest in have long term debt with covenants and what the covenant might say. If you are investing for dividends in companies that have long term debt you should be aware that debt ratios can affect dividend payments. If certain debt ratios exceed certain levels, a company could be forced to reduce or suspend dividends.

I have read in the past of this happening, but via google I did not get much in the way of examples. Lauren Thomas on CNBC in March 2017 says that Frontier Communications (Nasdaq- FTR) might cut or suspend dividend to address significant debt maturities in 2020-2022, even if it is not required to do so per its bonds' covenants. Precision Drilling Corporation in a Press Release with their fourth quarterly 2015 results says "The dividend suspension, while a result of a debt covenant restriction, further strengthens the balance sheet as we continue to maneuver through uncharted waters".

If you see long term debt jump a lot in one year, it is a good idea to check to see why and what the implications are for you company. The problem with debt ratios being not so good for a company is that they could get into problems, a vulnerability, when bad times come. We still go through economic cycles of expansion and recessions. In every recession there is always companies that cut or suspend dividends.

On my other blog I wrote on Wednesday about AGT Food and Ingredients Inc. (TSX-AGT, OTC-AGXXF)... learn more. Today, I will write about Intact Financial Corp (TSX-IFC, OTC-IFCZF)... learn more on Friday, June 30, 2017 around 5 pm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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