The commodity rout has claimed a fresh round of victims among some of the world’s leading dividend payers and is stalking even larger prey.
Freeport-McMoRan Inc., the major U.S.-based copper and gold miner, suspended its payout to shareholders on Wednesday, following in the footsteps of Anglo American PLC, another giant metals producer, which halted its dividend on Tuesday.
Kinder Morgan Inc., the largest pipeline operator in North America, also took an axe to payouts on Tuesday. The company that once lured investors with the promise of ever-bigger payments slashed its dividend by 75 per cent.
The common theme in the recent cuts is collapsing commodity prices, which are erasing profits and leaving management with little financial room to manoeuvre. The dividend suspension at Freeport was “a necessary evil in the current environment,” according to Anthony Rizzuto, an analyst at Cowen and Co. in New York.
But while cuts to dividends may be necessary, they’re usually hated by shareholders. The recent outburst of payout pain helps to explain why so many investors are fleeing the commodity sectors.
Steady dividend payments have been a big part of the reason to invest in large producers of raw materials. As those payouts become increasingly risky, the rationale for holding commodity stocks – even huge, well-diversified companies – begins to wane.
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