This from Investor’s Daily Edge:

The election’s over. President-elect Barrack Obama won, and some people are worried that he’ll start taxing dividends like income. Have I got news for you… that’s the least of our worries on the dividend front.  Put it in the drawer for next year’s hand wringing.

Because just when you thought the financial news had exhausted all the bad stuff and you had found safety in dividend stocks, I have to give you a heads up. Your stock could be getting a pension fund “margin call.”

I love dividend stocks. These companies have cash, pay cash, and keep the faith with investors for the most part. But some are on the verge of breaking that faith this year. It has nothing to do with mortgages or credit markets – it’s about pension funds in trouble.

And when pensions are sucking up cash flow, your dividends could suffer. Mercer, a pension consulting firm that is part of Marsh & McLennan (NYSE:MMC), already estimates that pension shortfalls will lead to a 10% cut in stock dividends this quarter compared to a year ago.

That’s a big deal. Even the 2003 squeeze on pension funds after the three-year-long post-dot-com bear market didn’t cause that. In fact, this could be the first time pensions have been hit so hard since 1958.

Pension plan contributions are a normal expense that companies handle just as they pay the electric bill and management bonuses. But pension plans are special. The funds are separate from the general coffer and there are rules on how much money the plans must have compared to the benefits they’ll have to pay out. This is true in the U.S., Canada, UK and Europe. And though I will use U.S. examples, British and European stocks are also under pressure.

In the bull market years of the 90s, keeping a pension fund properly funded was no problem for most companies. Their funds were flush with stock, and stocks were going up. In fact, before Enron spoiled everyone’s party, some pension funds were loaded with roaring hot company stock. (The post-Enron limit is 10% in company stock in the company pension fund.) Pension funds were making money.

Obligations were fully covered and then some. Some funds were so flush the companies were able to stop putting money in them for several years. They even showed earnings from pension funds as “other” income on balance sheets, making their earnings look better than they should.

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GE (NYSE:GE) was famous for smoothing its earnings by including pension fund surpluses in its figures. Some critics called this maneuver “vapor earnings.” These vapor earnings fattened the bottom line sufficiently to bring fortunate GE execs an extra 9% in their bonuses.

Now comes today… after a bear market… into a recession. Vapor earnings are vaporizing. As of September 30, S&P 500 companies’ pension funds have lost an average of 11.6%, according to CFO magazine. They are now about 92% funded. That’s just barely OK… for a couple more months.

For many years, U.S. companies only had to keep 90% of the present value of expected obligations in their accounts. The Pension Protection Act of 2006 will raise that “coverage ratio” gradually to 100%. For 2008, the magic number is 92%. And it goes to 94% in 2009. So this 92% funding estimate means that some companies pass muster, and a lot don’t.

Standard and Poor’s says S&P 500 pension plans were $200 billion short of minimum funding levels by the end of September this year. Worse, they were on target to surpass the $219 billion record shortfall of 2003.

Who’s in trouble? What stocks to avoid? Remember that funding a pension is a normal business expense. So it’s not every company that shows a pension obligation that should bother you, but the ones that show likely shortfalls that could overwhelm earnings.

Among the companies with big pension plans that are likely to need a large shot of hard-to-find money are Lockheed Martin (NYSE:LMT), United Technologies (NYSE:UTX), Aetna (NYSE:AET), Boeing (NYSE:BA), IBM (NYSE:IBM), Eastman Kodak (NYSE:EK), Goodyear (NYSE:GT), Ford (NYSE:F) and GM (NYSE:GM).

Those are just the big names. By industry, the most underfunded pensions are concentrated in information technology and healthcare. Utilities also slipped from overfunded last year to coming up short this year.

The good news is that companies have to give you a warning in their financial reports—the bad news is that you have to read the suckers. At least if you do it online, you can use a search and go straight to the “pension” part of Management’s Discussion.

Source: Another Fancy Disaster You Didn’t Need – Pension Fund Vapors

OK, I am not a micro-investor; Nano sounds closer. Where is Cheniere likely to go? I look at this position like a pile of chips on the poker table. As long as they keep sending the dividends I am no worse. Long term I need that dividend income for my retirement hedge against inflation. I did see the comment from “Barrons.” I would like to know your opinion of Cheniere and its industry segment?

I love your blog. It is top-of-the-list of a group of blogs I read daily and is the one I like the most.

Wayne.

Dear Wayne,

I love MLPs because they typically pay out great dividends. In this case, Cheniere (CQP) is paying a 16% dividend. That’s not nearly enough for me to love them.

First of all, they aren’t making any money yet. Their future revenues will come from a 100% interest in the Sabine Pass gas terminal, which is 99% complete.

I call this risky because if construction is delayed or they get a hiccup during operation, their earnings will be affected immediately and you’ll see the stock take a hit. If earnings take a big hit and it affects their cash flow, then it’ll be hard for them to scrounge up enough money to continue paying that 16% dividend.

If they stop paying the dividend, the stock will fall faster than Fat Albert skydiving without a parachute.

To make matters worse, they barely have any cash (what they do have is restricted to pay off bonds), they have over two billion in debt, and their dividend history stretches only five quarters. Typically, we look for eight quarters of steady or increasing dividend payments.

Listen, if you’re looking at this as a gamble, then that’s exactly what you’ve gotten yourself into. This certainly wasn’t the safest income investment to get into.

As a gamble, this company should begin performing well once they have their gas terminal up and running. But for growth to continue, they will need to start acquiring or building more terminals and pipelines.

As an income investment, this company isn’t conservative enough. This is certainly no ride. But as a gamble, why not ride it? If they don’t begin appreciating after their gas terminal starts operation, then let it slide.

P.S. Want to see me cover a stock? Send an e-mail to feedback@investorsdailyedge.com

Source: Ride or Slide: Cheniere Energy Partners (CQP)