The 8 Rules of Dividend Investing recommends selling a security whenever a dividend cut occurs.

A dividend cut indicates one of two worrisome characteristics:

In either case, investors have reason to avoid stocks that cut their dividends.

Earlier today, Genesis Energy (GEL) announced that it had cut its dividend to $0.50 from $0.7225 previously. Accordingly, the company no longer garners a ‘buy’ recommendation from Sure Dividend.

This article will discuss Genesis Energy’s recent distribution cut with an emphasis on why the distribution cut was unpredictable, why the partnership decided to reduce its distribution payment, and when investors should sell this security.

Business Overview

Genesis Energy is a master limited partnership with a market capitalization of $3.2 billion. Founded in 1996, the partnership is headquartered in Houston, Texas and operates in four (now five)reporting segments:

Genesis Energy’s operations are geographically diversified across the United States and primarily located in Texas, Louisiana, Arkansas, Mississippi, Alabama, Florida, Wyoming and the Gulf of Mexico.

Recent Financial Performance & Dividend Cut

Until recently, Genesis Energy’s performance had been excellent. The company was known for raising its distribution in most quarters and usually reporting distributable cash flow that exceeded its quarterly distribution payments.

Genesis’ performance took a turn for the worse with the company’s second-quarter earnings release, which was announced on August 3rd.

The partnership reported revenues down 8.8%, net income up 42%, and adjusted EBITDA down 5.2% from the same period a year ago. The partnership’s year-over-year revenue decline was largely attributed to ‘extraordinary’ planned and unplanned downtime at some of the partnership’s refinery customers in the Gulf of Mexico.