By Dan Caplinger

Filed under: Stocks, Dividend Stocks, Investing

If there’s one thing investors never tire of, it’s earning dividends. Over the past year, thousands of companies have been happy to comply, raising their dividends and rewarding shareholders with higher payouts.

But lately, we’ve seen a pullback, with some companies deciding to cut back on or eliminate their dividends altogether. Here’s a look at five companies that made this unpopular move, and why.

1. Cliffs Natural Resources (CLF): Cliffs Natural recently cut its dividend by 76 percent, from $0.625 per share quarterly to $0.15. The company produces both iron ore and metallurgical coal, two key ingredients for steel production. When the global economy was stronger, demand for steel from construction and infrastructure development projects was high. But weaker conditions recently, especially in high-growth areas of the world like China, have led to plunging prices for the raw materials that go into steel.

With huge amounts of debt on its balance sheet, Cliffs cut its payout in order to preserve cash and avoid adverse action from bond-ratings agencies on its outstanding debt. With the drop, the stock now yields just 2.4 percent.

2. CenturyLink (CTL): CenturyLink reduced its dividend by about 25 percent in February, cutting its quarterly payout from $0.725 per share to $0.54. CenturyLink is a major provider of telephone, Internet, and video services to customers in rural areas. Like its peers Windstream (WIN) and Frontier Communications (FTR), CenturyLink has struggled against the trend of customers giving up old-style landlines in favor of wireless services supplied by its competitors.

Although the company has had some success in finding growth from its more lucrative broadband Internet access, the steady stream of departing landline customers put enough pressure on CenturyLink’s cash flow that it chose to cut its dividend. Even after the drop, the stock still yields 6 percent.

3. Exelon (EXC): Utility company Exelon announced in February that it would cut its second-quarter dividend by more than 40 percent, with a new payout of $0.31 per share on a quarterly basis compared to the old $0.525-per-share dividend. Exelon has the most extensive stable of nuclear power plants in the country, and under ordinary circumstances, that has given the company a cost advantage over other power-generation alternatives.

But with prices of coal and natural gas so low right now, Exelon’s margins have been squeezed. Moreover, due to the need to invest in capital improvements to boost the efficiency of its reactors, Exelon decided that keeping more of its cash was a smarter way to maintain its credit rating while still leaving the door open to future growth. When the cut takes effect, Exelon’s dividend yield will drop to about 4 percent.

4. Telecom Italia (TI): Italian phone giant Telecom Italia said last month that it would cut its dividend by half over the next three years. The move is part of …read more
Source: FULL ARTICLE at DailyFinance