By: Dividend Sensei
Goodbye Teva Pharmaceuticals and DineEquity…
Teva Pharmaceuticals (TEVA) has been one of our most frequent purchases, as the world’s largest maker of generic drugs potentially offered an attractive deep value, high-yield opportunity, especially given its strong pipeline and recent Actavis acquisition.
However, management has proven incapable of executing well on this potential, and in the most recent quarter announced a mammoth write down on the Actavis acquisition, as well as much poorer results from its integration and new generic product launches.
This continues a disappointing history of continuing large write downs that point to poor management quality. Throw in a 75% dividend cut and the thesis for owning this stock is now broken and so it’s no longer in our portfolio, nor can I recommend anyone own it.
Meanwhile DineEquity (DINE), the owner of Ihop and Applebee’s, has been struggling with both a downturn in the broader resteraunt industry, as well as shifting consumer prefrences that have resulted in falling same store sales for several years now.
This investment was made as a deep value contrarian play, at a time when the earnings and cash flow still provided very comfortable safety cushions to the dividend. However, in recent quarters management’s attempts at a turnaround have failed and the dividend, while still covered by earnings and FCF, is now far less secure. So while it may not necessarily be cut in the next quarter or two, it certainly isn’t likely to grow.
And given that the world of high-yield, dividend growth investing is rich with undervalued opportunities, I made the difficult decision to cut our losses, and replace these two failed thesi investmets with two far better ones.