As earnings fall, dividends will likely be cut.
Our Mailbox Millionaire System can help you dodge those knives.
During its second-quarter earnings call earlier this week, Deere & Co. (NYSE: DE), maker of the iconic John Deere tractors and construction equipment, had some bad news.
After months of being “cautiously optimistic” about the U.S.-China trade war, Deere’s sales and earnings are eroding.
Thanks to the ongoing tariff battle, sales of agricultural commodities like soybeans have dropped off sharply. Rains in the Midwest also kept farmers out of their fields, delaying planting season this year.
That means farmers are putting off major equipment purchases . . . or just might just not be buyers at all.
As a result, Deere missed on earnings for the sixth straight quarter and lowered its full-year guidance. It now forecasts that its sales will grow just 5% in 2019 and that it will generate net income of about $3.3 billion.
Investors did not react well to the news.
Aside from the slower earnings growth, the news could also mean Deere’s dividend is at risk.
While its yield hasn’t been huge – it averaged about 1.8% before the big drop in share price – Deere has been known for generous dividend hikes. In 2017 it paid $0.60 quarterly, which jumped to $0.69 in 2018, then to $0.76 this year.
If Deere holds steady on its dividend, that means it will pay out $982 million this year – a big chunk of its net income.
In all fairness, that doesn’t mean Deere’s dividend is in immediate danger.
But it won’t be going up anytime soon.
And if this trade war drags on or its income forecast is off the mark, Deere’s dividend could be in trouble.
Deere’s not the only dividend payer feeling the pinch, just the most dramatic example.
The good news is that not all dividend payers are created equal.
Companies like Hubbell (NYSE: HUBB), Hormel Foods (NYSE: NYSE: HRL) and AT&T (NYSE: T) all have relatively little exposure to China.
And if you’re looking for safe dividend payers, the Mailbox Millionaire System is going to be a great fit for you.
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