With respective dividend or distribution yields of 14.7%, 8.3%, and 6.6%, these three investments could provide an investor with an aggregate yield of 9.9% if purchased together. However, I think that the closed-end Guggenheim Strategic Opportunities Fund (GOF -0.74%), the home appliance company Whirlpool (WHR 4.97%), and UPS (UPS -0.43%) are likely to reduce their dividends or distributions to investors. Furthermore, in two of the cases, doing so would make them stronger companies. Here's why.
The Guggenheim Strategic Opportunities Fund
This is a closed-end fund, meaning it doesn't raise new capital from investors; but it can use debt to generate returns for them. It trades on the market like a stock, and it makes monthly distributions (rather like dividends). The fund has a superb record of making distributions to investors, having maintained them for over a decade.
But here's the thing: The fund's net investment income hasn't covered its distribution for the last seven years, and over the previous six years, the fund has used its capital to make distributions. This is to the detriment of its net asset value (NAV), which has declined every year since 2018, and now stands at $11.50.
Meanwhile, the fund has effectively increased its leverage to boost its investment income. This isn't a sustainable path, yet the market is pricing it at a 28.5% premium to its NAV. Go figure.
Whirlpool: a fascinating potential investment
The home appliance company is one of the most interesting stocks on the market. Management believes it will benefit from the Trump tariffs and the administration's approach to defending American manufacturing interests, not least by closing a loophole that allows Asian competitors to use Chinese steel in their products and thereby avoid tariffs on it.
That may be the case, and it is good news for Whirlpool and its competitive positioning. Still, the company must navigate ongoing weakness in the housing market, which is unlikely to improve until mortgage rates decrease from their relatively high level. High rates discourage home sales, which hurt the higher-margin discretionary appliance sales that Whirlpool needs to boost its earnings.
30-Year Mortgage Rate data by YCharts.
And the recent easing of the trade conflict may encourage competitors to increase imports to the U.S. as they did in the fourth quarter of 2024 and the first quarter of 2025, ahead of any tariffs imposed by the new regime.
It all adds up to an uncertain near-term environment for Whirlpool, and its earnings and cash flow guidance could be under threat. The annual dividend currently uses up $390 million in cash, and management expects $500 million to $600 million in free cash flow (FCF) in 2025.
However, it has $1.85 billion in debt maturing in 2025 and plans to pay down $700 million of it through refinancing, with the amount ranging from $1.1 billion to $1.2 billion. Those plans could come under threat if the company misses guidance, and I think that could happen in the current environment.
UPS' dividend might not necessarily be cut, but it should be
Alongside Whirlpool, UPS will be a better investment if and when it cuts its dividend. The company began the year with management estimating that it would generate $5.7 billion in FCF while paying $5.5 billion in dividends and expecting to make $1 billion in share buybacks.
Then, in late April, the impact of tariffs on the economy began to take effect. And management declined to affirm its full-year guidance on the first-quarter earnings call, implying that its FCF guidance is under threat. Furthermore, there's the added complication of UPS deliberately reducing its lower-margin Amazon delivery volumes by 50% from 2024 to the second half of 2026.
The company's dividend is under threat, and even if management elects to maintain it, there's a powerful argument to say it shouldn't. As previously discussed, the company's investments in technology and refocusing its network on higher-margin and more productive deliveries (such as in the healthcare and small and medium-size business markets) imply that its return on equity (RoE) will improve.
Data source: Getty Images.
That would be a significant plus. Still, it would be an even bigger plus if management could allocate more of its earnings to invest in the business at a higher rate of RoE, rather than using up a significant portion of its cash flow and earnings on dividend payments. A dividend cut would help free up cash for productive investment that would add value for shareholders.
