Speed Reading Earnings Report: Beyond The First 60 Seconds

This is a continuation of my previous post: How To Speed Read An Earnings Report In 60 Seconds Or Less

Assuming you did the first 60 second read of the earnings report and still didn't get a warm fuzzy feeling for the dividend safety. Well, now you have to spend a bit more time digging into the report.

But fear not. I promise, you can still get through the earnings report in less than 15 minutes and get to a reasonable conclusion about the dividend safety. You do this by simply extending your word search in the earnings report and paying attention to the management's use of words to describe dividends.

Search (CTRL+F) for the word 'Priority'

I only pay attention to the word 'Priority' within the context of dividend.

When management starts using the words like 'high' or 'top' with 'priority' to describe their dividend policy, it generally means there are concerns about dividend safety and the management is trying to calm the nerves down.

The word 'Priority' is a bad word when used with dividends 

I like to go back a few quarters to see how management used the word 'priority' to describe a dividend and if there are any subtle changes to this so called priority in an earnings report.

I would open up the past earnings reports in multiple windows side-by-side, and look at the sentences used to describe the dividend priority and pay special attention to the words that come before and after 'priority' and the order in which they are used.

An example of how a management can gradually and subtly degrade the dividend priority from one quarter to another

Mattel's Q3' 2016 earnings report (strong wording with dividends first in the statement):
"And dividends remain our first priority after re-investing in the business..."

Mattel's Q4'2016 earnings transcript (note the additional word 'also' which implies there are other first priorities besides dividend):

"Dividends also remained our first priority after reinvesting in the business..."

Mattel's Q1'2017 earnings transcript (note the mention of dividend priority has moved to the second fragment of the sentence, clearly implying lower emphasis on dividends):

"After reinvesting in the business, dividends remain our first priority."

Mattel's Q2'2017 earnings transcript (note how dividend is described as a second priority instead of first.):

"Our second priority after investing in the business is to continue to reward our shareholders with a dividend."

This is where I would be certain that dividend is not safe and would either trim or sell the position before the stock price and dividend takes a hit.

Surely, Mattel cut its dividend in Q3 of 2017.

For an Extra Credit:
Search Words: M&A, Spin-off, Capital Allocation

Does company have any plans for mergers or acquisitions or spin-offs? 

Such activities could have impact on future dividends depending on how the company plans to raise cash for the M&A or in the case of a spin-off, how the dividend policy would be effected after a change in cash flow?

For example, it was known for at least two quarters that HCP management was looking into spinning-off its troubled SNF facilities due to trouble with its two largest tenants, and it would result in resetting of dividend payout.

Lack of clarity in dividend policy post spin-off

In the case of HCP, questions started to show up in the quarterly transcripts from analysts regarding the post spin-off dividend. I didn't see much clarity in the responses that management gave. Also it wasn't clear how much dividend the new company would pay after the spin-off.

Feeling of uncertainty

There was just too much uncertainty around the HCP dividend in pre-spin-off talks and I wasn't getting the warm and fuzzy feeling from what I was reading in the earnings transcripts prior to the spin-off.

Get-out while you can

I pulled the plug before the HCP spin-off and saved myself from a dividend cut and a 30% price decline.

Soon after the spin-off, HCP announced the new dividend which was actually a cut, and the new spin-off company never paid a dime in dividend. Therefore, investors who decided to keep HCP shares through the spin-off got a big dividend cut in addition to a depressed stock price that has still not recovered and were left holding the bag of an unproven spinned off company that didn't pay any dividend.

Moral Of The Story

Don't let the management pull a fast one on you by telling you that dividend is safe when it isn't. Read between the lines and look for clues to see behind the smoke and mirrors. You will get better at it by knowing what to look for in an earnings report and by paying attention to how certain words are used to describe dividends in an earnings report.

Disclaimer: Author of this article is not a licensed/registered financial or investment adviser and does not provide investment advice. Any mention of stock names/tickers in this article or website is not a recommendation to buy or sell. Please do your own due diligence before buying any stocks. This article is for informational and entertainment purposes only. Full disclaimer can be read here: Full Disclaimer


  1. Good stuff Mr. ATM. I'm sad to admit that I endured both the MAT and HCP reductions. DOW recently did the same as HCP as part of it's merger with DuPont. I refer to HCP and DOW (now DWDP) as "back door" dividend cuts as often they are misrepresented by management when they are announced as new dividend policy rather than announced as the outright reduction they really are.

    That said, HCP and MAT were very small holdings. I got greedy chasing high dividend yields when I made my small initial purchases. As time passed, I did not make any add on buys for fear of a dividend reduction. Trying to learn from mistakes, my reaction over the past few years has been to de-emphasize current yield and emphasize dividend growth potential with new stock purchases.

    My question for you is: Do you review every 10-Q for every company you own or plan to invest in? I do not and am deficient that way as an investor. This is why I like your last 2 posts on how to efficiently go about reviewing quarterly reports as it related to DGI.


    1. Good Morning Tom,

      I have also endured the pain of a few dividend cuts during my earlier part of investing career. Since then, I focus more on dividend growth and other safety metrics than just the high yield, as you also stated. Time is a good teacher.

      As for not buying any more of HCP and MAT, that was a good call on your part. I also owned MAT but got rid of it when it was clear that FCF was not going to cover the dividend and they would have to take more debt. I took a small loss, but nothing like what other people endured a year or so later when MAT cut its dividend and eventually suspended it all together.

      Another warning sign for dividend is when a new CEO takes control of a troubled company. The new CEO may not think twice to cut or even completely suspend dividend. He/she would want maximum flexibility in capital allocation to turn the company around and no body would blame him for breaking the past management's promises.

      I think that was the case with GE. I hope it doesn't happen, but I wouldn't be surprised if Flannery completely suspends the dividend.

      Regarding your question related to 10-Q, I use two different processes depending on whether I already own the company or if it is a new position I'm considering to own or build-up.

      For existing positions, I simply follow the process I've noted in the last 2 posts. I have 40 some positions, so this process works nicely for me and saves a lot of time.

      For new positions, if they pass my initial screen in step 1, I would spend considerable amount of time going through company/research material. In a nutshell, here is what I do in this exact order:

      1. Screen the company using FastGraphs (this is my go-to tool). It tells me what the fundamentals(eps, FCF, payout ratios, credit ratings, dividend growth, etc.) look like. It also gives me an idea of a fair value.

      It takes me no more than 10 min to do this screen. If the stock passes the screen than it makes it to my watch-list and then I can work on further research.

      2. Read the latest investor presentation from company's website to get familiar with the company and their products and the market they play in. I also focus on what company says about their dividend policy. I like to see company brag about dividends in those presentations. Next, I check for any issues outlined in the presentation and any future projects.

      3. I open latest quarterly earnings transcripts and head straight over to future guidance and analyst's questions. If guidance is positive, the stock should do well going forward. Analysts will poke into issues, so I want to understand the current issues and what management is doing to fix them.

      4. I also read the latest CFRA report and Morningstar for their Fair Value estimates, just to crosscheck against FastGraphs.

      5. I set my buy price and yield targets and wait for the stock to come to me.

      Once I have started a position, I would work on building the position up on strength but limit additions on a weakness to no more than 2% of cost as I don't like to catch a falling knife.

      Believe it or not, both of these processes have worked very well for me and I continue to tweak and improve upon them.

      Always a pleasure to see a comment from you Tom.

      Take care and happy investing.

  2. Thanks Mr. ATM. Very complete and insightful process. It could be a blog post in and of itself. Tom

  3. I'm not used to paying this much attention to the wording in the reports. But interesting to see your example with Mattel. I'll keep this in mind. Thanks for sharing!

    1. Yep, we norwegians have a lot to learn here @thebetapost. Lot's of free long-term information from the company if we focus on words like "dividend" "dividend safety"...

  4. I'll be book marking this for future use Mr ATM! I'm sorry for my delayed comment, I didn't even realize that you had a new post.

    I have also noticed that if companies go out of their way to tell you that the dividend is safe, it likely means that it isn't. My biggest lesson on that was KMI a few years ago. That was a painful one but I learned a lesson. It also taught me to keep an eye on companies debt.

    1. No problem DS, a delayed comment is better than no comment, besides I always appreciate hearing from my blogger friends.

      Yes, KMI is a lesson for the books. It was a widely held stock among dividend investors (thankfully I didn't own it) and in 2014 management promised 15% div annual increase in 2015 and 10% growth from 2016 to 2020.

      However, in the Q3'2015 (one quarter before the massive cut) ER, management clearly said that their dividend coverage has taken a substantial hit, and would expect to cover a dividend that is 6% to 10% higher than the previous year. FCF was clearly not covering the dividend at the time, that was a big warning as well.

      So, as you can see, they were trying to scale back the expectation on dividend growth in Q3 ER and then in Q4 they dropped the big hammer and slashed the dividend all together.

      There wasn't enough warning like Mattel, but there was still warning signs in the previous quarter.

      Yes and company's debt is very important which ties into their credit ratings. Most companies would rather cut the dividend than take a hit on their credit rating. And when a company is already at the bottom of the 'investable grade' credit rating of BBB- , there is really noway out but to cut the dividend and safe the rating.

      This is what S&P said after re-afirmming KMI's credit rating of BBB- after dividend cut:
      "The rating action reflects our view that KMI's dividend adjustment is credit positive and a prudent and necessary action taken by management in light of very challenging capital market conditions,"

      Credit ratings are very important and reflect the company's debt levels and why I pay attention to these ratings.

      Anyway, I love to do postmortems of these dividend cuts as I end up learning a lot from them. Thankfully, I've not had to experience a dividend cut in a while. I want to keep it that way.

      Take care

    2. So far, KMI was my only really bad experience with a dividend cut. Cut may not be strong enough, does slash sound fiercer? One of my friends was in it a lot heavier than I was. I should add that it also taught me a lesson on proper diversification. I don't remember the exact percentage but it was a heavy weighting in my portfolio at the time.

      Live and learn!

    3. Slash it was, a 75% dividend slash.

      Proper diversification is a must, and so is active monitoring of your position, no matter how high the convictions in the stock,

  5. Very nice and informative article. I am definitely going out for these words in the future. Another dangerous word is "strategic alternatives". It basically means company is likely to file Chapter 11.

    1. Thanks dividendgeek. "strategic alternatives" sounds scary, hope I never have to read that in any of my company's earnings report.

      Thanks for stopping by.

  6. Good stuff - I think it's key that investors look at the reports of the companies they own at least on a yearly basis and sometimes more often when it's not a rock solid company. One of the reasons I own so few individual securities is that I don't simply have the time to keep track of 60 stocks and decided whether they're still good investments.

    1. Hi,

      Yes, definitely time consuming especially when you have so many stocks. Yearly review is a great idea and also if one has done enough due diligence when buying a stock, it makes it easier to monitor it. So upfront effort is preferred than an on-going deep dive analysis, at least in my case.

      thanks for stopping by Timeinthemarket

  7. Love it! Such a school-book example with Mattel. And another reason to invest in us companies. You can't search like this for nor,swe or other companies. They never talk about dividends this way, which is why aristocrat in sweden is about 10 years while it's 25 for you.

    1. Thanks Arne.

      Yes Mattel is a school book example and you would be surprised to see how often management follows the same pattern towards dividend cuts.

      Thanks for sharing about not, swe companies. Didn’t know aristocrat is 10 years there.

      That’s part of the reason why l mostly invest in US companies, management has to be much more open in discussing ER and analysts are aggressive in asking questions.

      Take care and thanks for stopping by.

  8. Good content there Mr. ATM. I liked reading your first 60 seconds and this one that takes bit beyond as well. I personally pay attention to a few more criteria as well but then again only if I have more time than 120 seconds which is where your post is concentrated on. I also like to read notes to financial data and risk on the fist part of the report.

    I also try to spend more time on balance sheet which is available on website for a quicker review. I like your post and can use for future as well myself for a quick review.

    Good Luck,

    1. Thanks TDK, appreciate you stopping by.

      It’s great that you pay attention to additional metrics and balance sheet. I do the same but only for new positions or if there is a concern with an existing position.

      Glad you liked the post.

      Take care

  9. Isn't that the truth. If a company says that their dividend is a priority or will not be cut then you can be sure that is exactly what is on their mind and of great concern. Just like Kinder Morgan, and many of the off shore rig providers, I think I had one call ESV and then also BHP. Or you could have a situation like HCP where I believe they did a spin off of a company they shouldn't have bought in the first place and got into trouble, then in the transaction the dividend was cut but really wasn't expressed like that. Usually a dividend cut will prompt me to sell most or all of my shares because it is proven that companies that cut will under preform companies that don't. Makes sense.

    1. Exactly right Bob!

      Yes, HCP tried to put a positive spin on the dividend cut under their SNF spin-off, though the spin-off didn't pay any dividend and with the reset of HCP's own div payout, it came out to be an overall dividend cut. And don't forget HCP was a dividend aristocrat, so it hurt lot of investors who trusted the management in keeping the aristocrat status, no matter what. HCP still hasn't recovered from the plunge after the div cut.

      I would also sell my position in a company if it cuts its dividend, with the only exception if the cut was caused by conditions outside of company's control. For example, in the case of COP, they had to cut the dividend because of the extreme plunge in the oil prices, the stock recovered in a big way as the oil prices recovered.

      Thanks for stopping by and your comment.

  10. Thanks for sharing the excellent tips, Mr. ATM!

    I'm far from an expert, but I've spent enough time looking at company financial positions that it has started to become easier to spot good companies verse bad companies.

    I quickly review cash flow/revenue over 10 years, dividend income over 10 years, pay out ratio, and find companies using stock screeners etc.

    After looking at enough companies, you begin to notice the difference very quickly. And that's just using tools provided by my broker and free services like morningstar.

    That said, I never would've considered that the word "priority" could be a red flag. As a dividend investor, I really appreciate the tip! I will definitely add this to my check list for future investments.

    Thanks for sharing! Have a great week!

    1. Hi RTC,

      You are absolutely correct, it gets easier with practice and time and you also learn what to look for, rather than reading every word of it.

      After looking at so many companies, I've created models in my head and I know right away what to do when a company fits that model.

      I do most of my research upfront before buying a new position and then I simply monitor for dividend safety and only deep dive, if there is an impending risk to a dividend. Capital appreciation takes care of itself.

      Thanks for reading and you have a great week too RTC.

  11. Wow great breakdown! I enjoy checking in on companies but do not really care to listen in to tons of earning calls and look at reports.

    I keep my individual holdings to a minimum but these are some great tips for the next time I need to do research.

    1. Thanks DM. It’s always a good idea to keep number of holdings to what one can easily manage.

      Thanks for stopping by.


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