5 Companies That Should Cut Dividends to Zero

Investing

Published: September 10, 2016 10:20 am

Last Updated: January 13, 2020 3:43 am

Some companies that are growing fast enough, and will continue to do so, or need money for M&A, should cut their dividends to zero. Investors are better off with rising stock prices and managements with capital to expand.

Some of these:

D.R. Horton Inc. (NYSE: DHI) set guidance higher for both 2016 and 2017, due to a strong housing market. As it competes against Pulte and smaller rivals for which companies can enter the most geographic markets, it needs all the capital it can get. It is also using mergers and acquisitions (M&A) to grow. It recently bought the homebuilding business of Wilson Parker Homes. D.R. Horton’s current dividend is $0.32, or about 1%.

Coca-Cola Bottling Co. (NYSE: COKE) had a revenue increase to $2.3 billion in its most recent fiscal year, from $1.7 billion in the previous one. It is moving into Ohio, Indiana, Kentucky, Illinois and West Virginia, which almost certainly will require capital. Its net sales rose 37% in the most recent quarter to $840 million. Management stated this was because of “Organic growth in the legacy territories as well as territory expansion through the acquisition of several new distribution territories from Coca-Cola led to the solid performance.” The current dividend is $1, or 0.66%.

McKesson Corp. (NYSE: MCK), the leading pharmaceutical distributor, posted a revenue increase in the past year of $49.7 billion, up from $47.5 billion in a year earlier. Its management offered hefty earnings for the quarter and year ahead. It continues to be a buyer of other companies, most recently Change Healthcare (which was labeled a merger with one of McKesson’s divisions). The current dividend is $1.12, or 0.61%.

KB Home (NYSE: KBH) is in much the same position as D.R. Horton. Also note that new home sales hit an eight-year high in July at 654,000 annual rate. Its current dividend of $0.10 is a 0.64% yield.

Aaron’s Inc. (NYSE: AAN), the rent to own retailer, has blown the cover off the ball in terms of earnings. It has over 2,000 locations in 47 states. It handily best Wall Street forecasts last quarter, and it continues M&A activity with a recent buyout of Dent-A-Med for $55 million. The current dividend is $0.10, or a 0.39% yield.

One thing these companies have in common is that their yields are so small, no one would miss a dividend.