There is a lot happening in the markets. Let’s have a look at some of the top news.
By Kris Rosemann
On January 16, General Electric (GE) announced a $6.2 billion write down related to its legacy reinsurance business, and market observers have taken to speculating about the fate of the industrial giant. Activist investor Nelson Peltz’s Trian Fund Management, which has watched the market value of its 2015 investment in GE dwindle, is reportedly pushing the conglomerate to explore strategic alternatives. Peltz and Trian have been in the middle of a number of battles for strategic power at the top of a number of US-based behemoths including the recently formed DowDuPont (DWDP) and Procter & Gamble (PG), and Trian has been successful in playing a role in past business separations such as Kraft’s (KHC) split into two companies and Ingersoll Rand’s (IR) separation of its security business Allegion (ALLE).
One of our favorite income ideas, Realty Income (O), announced a 4% increase to its monthly payout after the close January 16. The dividend increase marks ther 95th such increase in Realty Income’s publicly-traded history, the 81st consecutive increase in the quarterly payout, and brings the compound annual growth rate of its dividend to ~4.7%. We’re big fans of the dependable monthly income stream that yields nearly 5% when annualizing the most recent monthly payout, but we must note the dependence of the dividend on adequate access to the capital markets and the threat rising interest rates pose to the equity’s price, “Tweaking the Newsletter Portfolios for a Rising Interest-Rate Environment.” Said differently, even if Realty Income does everything right, rising interest rates could spoil the party.
On the other end of the spectrum in terms of dividend action is Eldorado Gold (EGO), which announced the suspension of its dividend after the close January 16. The gold miner reported in-line 2017 production, but suspended the payout “pending the results of the technical reports and potential subsequent capital requirements.” The challenges the company faced highlight the risks of depending on any price-taking commodity producer for income, a notion that is highlighted by Eldorado’s past dividend policy, which tied its payout to a fixed Canadian dollar amount per ounce of gold sold. Management has touted this policy as simple and sustainable (it still claims it is on its investor relations site), but it was not able to overcome challenges related to its operations in Greece and production issues at its Kisladag, Turkey mine.
In potential M&A news, shares of Juno Therapeutics (JUNO) have exploded higher on reports that Celgene (CELG) is in talks to purchase the young biopharma firm. The deal would be expected to aid Celgene’s position in multiple myeloma and other blood cancers, but shares of Celgene have sold off a bit on the news. The two companies already have a ten-year partnership in which Celgene took a 10% stake and, “the two companies will leverage T cell therapeutic strategies to develop treatments for patients with cancer and autoimmune diseases with an initial focus on Chimeric Antigen Receptor Technology (CAR-T) and T Cell Receptor (TCR) technologies.”