Signs of a slowing global economy are casting concerns over the profitability of swathes of stocks as we move into 2020. However, that doesn’t mean today is not a great time to get investing in equity markets. The growth picture might be a bit muddier, sure, but there’s no doubting that dividend investors continue to enjoy a purple patch.
Report after report shows how, broadly speaking, shareholder payouts are still on the up, despite rising geopolitical and macroeconomic concerns, expansion that is still driving yields to significant highs. But as we enter the New Year, it clearly pays to be a bit more cautious when it comes to filling up with income stocks.
Take Hunting (LSE: HTG), for example. City analysts expect the business to raise a predicted 7.9p per share full-year dividend for the outgoing period to 9.4p in 2020, a meaty hike that’s built on expectations of a 6% profits rebound next year. Such predictions look to be built on extremely sandy foundations, though, as news flow this week proves.
Business is bludgeoned
Hunting, which provides equipment for the upstream oil sector, said in a year-end market update that “activity levels within the North American oil and gas industry continue to slow” and that “the pace of decline [is] increasing, particularly within the US onshore market.”
The FTSE 250 firm noted that crumpled capital budgets and seasonal factors have smacked business in Q4, and that a number of its customers in the US onshore segment have shuttered facilities in response to recent weakness.
In better news, Hunting kept its full-year EBITDA expectations on hold, though the pace at which trade is worsening suggests that a poor December could be in the offing, putting in jeopardy those current expectations.
At its Hunting Titan unit — its single biggest division by profit and one responsible for more than 75% of underlying profits — both revenues and profits were below the monthly run rate of the third quarter in both October and November. Hunting said that the situation here “remains highly competitive and continues to decline in line with activity levels and rig counts,” despite the introduction of new product ranges.
Hold on tight!
Plenty for its investors to fret over as we move into 2020, then. Hunting has fallen 14% in value during 2019, and it’s not difficult to foresee a year of heavy (if not heavier) weakness next year.
As this article goes to print, latest Baker Hughes oil rig data showed that there were 667 units in operation as of December 13, down from 873 a year earlier. The number of rigs has fallen in seven out of the past eight weeks, and as the clouds gather for the global economy I fully expect the number to keep falling in 2020.
It doesn’t matter that Hunting’s forward P/E ratio of 12.4 times and handy 2.3% dividend yield make it look cheap on paper. Given the pace at which market conditions are worsening, it’s a share that I think should be avoided at all costs.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019