Saturday, April 25, 2020

Dividend Watch: The Financial Media Are Barking Up The Wrong Tree



  • The financial media are howling about all the companies cutting, suspending, or omitting dividends; but among S&P 500 companies, they are barking up the wrong tree.  
  • Since March 1, only 28 of the S&P 500 have officially cut or omitted their dividends.
  • That number of cuts pales compared to the 212 companies that have paid dividends and is blown away by the 103 companies that have raised their dividends.
  • The financial media might be guilty of looking so hard for the bad news that they are ignoring the good news.
  • Since March 1, nearly 50% of the 212 companies announcing or paying dividends have hiked them compared with just 13% that have cut them.  We expect more good news in the weeks ahead. 
The media are missing the powerful message that most major U.S. corporations are broadcasting:  "The coronavirus is devastating and creates much uncertainty, but we believe it will pass sooner than most headlines are stating"
         As I mentioned in a previous Dividend Watch, in 2008-2009 we noticed that apart from the banks, few U.S. companies were cutting their dividends in the face of the recession.  Indeed, much as today, many companies were hiking dividends.  That was one reason we became more optimistic that the credit crisis would be shorter and more shallow than was the consensus of the day.              The coronavirus pandemic is unlike anything we have ever seen, but the greatest corporations in the world are telling us, at least for the present, that tomorrow is coming and it will be much brighter than most of us now believe.
        You may argue with the point I'm making, but I believe the stock market has zeroed in on the net positive dividend actions of major corporations, and that is one of the reasons stocks are nearly 20% above their recent lows.

The following are the 28 S&P 500 companies that have cut or omitted their dividends.  We will have a list early next week of companies whose dividend may be in jeopardy.

S&P 500 Companies Cutting Their Dividends
 From March 1-April 24  

Alaska Air
ALK
Darden Inc.
DRI
Invesco Corp
IVZ
MGM Corp
MGM
Apache Energy
APA
Estee Lauder Co
EL
Nordstrom
JWN
Noble Energy
NBL
Aptiv PLC
APTV
Ford Motors
F
Kohl's Corp.
KSS
Occidental Pete
OXY
Boeing Corp
BA
Freeport-McMoRan
FCX
L Brands Inc.
LB
PVH Corp
PVH
Carnival Cruise
CCL
Gap Inc.
GPS
Las Vegas Sands
LVS
Schlumberger Int'l
SLB
CenterPoint Energy
CNP
Hilton Worldwide
HLT
Macy's Inc.
M
TJ Maxx
TJX
Delta Air
DAL
Helmerich &Payne
HP
Marriott Int'l
MAR
Tapestry Inc.
TPR

Sunday, April 19, 2020

Dividend Watch: Increases Still Outnumber Decreases


  • Dividend Cuts by S&P 500 companies during the coronavirus have been far less than what was predicted just a month ago.
  • From March 1 through April 17, only 27 companies in the S&P 500 announced dividend suspensions or cuts.
  • Dividends remain an important linchpin connecting major corporations and income-hungry investors. 
  • We forecast total S&P 500 dividend payments will fall in the range of 10-15%, far less than Wall Street expectations. 
Dividend announcements were slow last week.  They will speed up in late April through May.  Here are the most recent overall dividend data. 

Dividend Actions by S&P 500 Companies 
March-April 17, 2020


Dividend Paid

Dividend Increased

Dividend Decreased

192

96

27


The number of companies increasing their dividends since March 1 grew to 96,  with two important companies, Johnson and Johnson (JNJ) and Procter and Gamble (PG), hiking payouts approximately 6%.  The star of the week was Skyworks Solutions (SWKS), who raised its dividend an eye-popping 57%. While 27 S&P 500 companies have announced dividend cuts, most of these were smaller companies with modest dividends.  So far, the 96 companies that have raised their dividends, have pushed total dividends paid for the period modestly ahead of the same period last quarter.  

        We believe more cuts are inevitable as companies are forced to take government bailouts in the months ahead.  However, we believe total dividend cuts by S&P 500 companies will be far less than the 25%-30% levels predicted just a month ago, perhaps less than half that number.

        Next time we'll list companies that have announced dividend cuts, and list a group of companies that our research suggests are in danger of lowering or eliminating their dividends.

Greg Donaldson, Founder
Donaldson Capital Management

 























Monday, April 13, 2020

Dividends Are Not Dead--They're Still Growing


  • Since 1958, cumulative annual dividend cuts in S&P 500 companies have been rare with only 5 annual cuts over 1%.
  • In the early days of the current coronavirus scare, investors were betting that dividends would be slashed across the board.
  • Dividend cuts in March and early April have been remarkably tame and outdistanced by dividend hikes.
  • Upcoming earnings season announcements may provide more clarity about companies' dividend payment intentions.
In order to see a broader picture of the dividend actions of the S&P 500, I tabulated all companies in the S&P 500 that either announced a dividend action or paid a dividend from March 1 through today.  The results are far different from what the headlines might suggest.


Dividend Actions by S&P 500 Companies In March-April 2020


Dividend Paid

Dividend Increased

Dividend Decreased

187

87

21


One hundred eight-seven companies paid a dividend in March or early April, and of those, 87 have hiked their dividends.  Only 21 companies have announced dividend cuts.  The dividend increases had a median growth rate of 7.85%, about the same percentage hikes as in 2019.  A Barron's article this weekend says S&P 500 futures are pricing in dividend cuts of approximately 30% for the next twelve months.  Barrons also mentions that many Wall Street analysts are reducing their dividend-cut predictions.  
        The dividend actions thus far suggest that the big worries that ripped through the markets about dividend cuts in the early days of the sell-off are diminishing.  Importantly, for the economy and the stock market, if corporations continue to pay and hike dividends like they have in the last month and a half, it would signal that many top managers are optimistic that the economy can recover faster than is now being touted by the financial media. 
        Wishful thinking is not always a good business or investment strategy, and the recent good trends could reverse, but if the dividend data continues to surprise to the upside, it might be the ray of sunshine we all need.

Blessing 
Greg Donaldson, Founder
Donaldson Capital Management

Thursday, April 09, 2020

Dividend Watch: Recent Corporate Dividend Announcements

  • Beyond the Great Depression, S&P 500 annual dividend cuts have been few and small, with the largest cut being 21% in 2009.
  • Analysts are now predicting dividend cuts in the range of 33% for S&P 500 companies in 2020.
  • Dividend cuts of that magnitude would signal that companies believe that the damaging effects of the coronavirus will continue to disrupt business well beyond 2020.

It is our hope and belief that dividend cuts will not reach the 33% level now predicted by many analysts.  Even though dividend payments are a voluntary corporate decision, in the United States dividend cuts have a more negative connotation than in any other country in the world.  There are many reasons for this, but the single biggest is that in the U.S. dividends are paid quarterly, while in many other countries they are paid semiannually or annually.  In addition, in many other countries dividend payments have tax consequences to the corporations.  Thus, in the UK for instance, dividend payments are pegged more closely to the annual performance of the company, while in the U.S. payments are seen more as a measure of the longer-term prospects of the company.  For these reasons and others, U.S. corporations that announce dividend cuts usually see a corresponding cut in their stock prices. 

I'll provide another Dividend Watch scoreboard of dividend actions since the beginning of March on Friday, but I wanted to share some recent dividend announcements by major corporations.  Fed Chair Powell made the biggest announcement this morning when he said that he believes major banks are in good shape to pay dividends.  Bank stocks exploded after the announcement.  Many analysts were predicting a 50% chance of bank stock dividend cuts.  Here are other recent dividend announcements.  We believe announcements like these are one reason that stock prices have rebounded this week.    


Major Banks
Fed's Powell sees banks in good shape to pay dividends

Starbucks
The company says it does not plan to cut its dividend but will temporarily suspend its share buyback program, while taking steps to delay expenditures and reduce costs.

AT&T

At&T reiterates confidence in its dividend despite economic uncertainty.

Exxon-Mobil
“Our capital allocation priorities also remain unchanged,” noted Woods. “Our objective is to continue investing in industry-advantaged projects to create value, preserve cash flow for the dividend and make appropriate and prudent use of our balance sheet.”

JP Morgan

Barring an Extremely Adverse Scenario, JP Morgan Hopes to Maintain Dividend

Walgreens

Walgreens Expects to Continue Dividend For Now

Genuine Parts
"Through these actions and our on-going working capital initiatives, the Company has the liquidity to operate through these uncertain times as well as continue to pay the dividend." – Chairman and CEO Paul Donahue

Chevron
Chevron says its focus is on protecting the dividend.

AT&T
AT&T reiterates confidence in its dividend despite economic uncertainty.

Greg Donaldson, Founder
Donaldson Capital Management

Tuesday, April 07, 2020

Dividend Watch: Dividends Aren't Dead

        In 2009, shortly after the government required all banks to cut their dividends, we created what we named the Dividend Watch to track dividend announcements and actions of all companies in the S&P 500.  It was our opinion that the overall stock market was overreacting to the financial problems that appeared to be narrowly focused in the banking sector.  We held this view because a look at the long-term dividend payment records of the S&P 500 revealed that companies are very reluctant to cut dividends.  Indeed, in the 50 years from 1958 to 2008, dividends had been cut by over 1% in just 5 years.  During this same period, stock prices had fallen in 16 years and earnings had fallen 13 times.  Annual changes in prices and earnings on a percentage basis were about 2.5 times that of changes in dividends.  We were hopeful that the Dividend Watch Report could act as a barometer for not only the stock market but also for the overall economy.  If few companies in the S&P 500 Index, other than banks, cut their dividends, it would signal that most companies believed they could navigate the crisis with minimal ill effects and continue to pay their dividends.  
        Our Dividend Watch Report soon revealed that few companies, beyond the banks, would cut their dividends in 2009.  In fact, many companies were actually increasing their dividends.  The surprising number of companies hiking dividends allowed us to become more bullish early in 2009 about the near-term prospects of the overall stock market and, to some extent, the U.S. economy.    
        We are again firing up the old Dividend Watch Report in the current coronavirus pandemic.  The current pandemic will affect many more companies than did the 2008-09 banking crisis, but we again believe that corporate America will surprise us with dividend actions that are more positive than is now being priced into the stock market.  As we release this 2020 Dividend Watch blog, Wall Street analysts predict that S&P dividends will be cut approximately in the range of 33%.  
        Our analysis runs from March 1 to the present.  Early March was when the full impact of coronavirus exploded into our collective consciousness.  We'll track the dividend announcements on a weekly basis. 
      
Dividend Actions by S&P 500 Companies In March 2020.

Dividend Paid

Dividend Increased

Dividend Decreased

43

10

18


From March 1 through today, approximately 30% of S&P 500 companies announcing dividend actions have cut or suspended their payments. (18 of 63).  We suspect that some companies that have announced suspensions may reinstate their dividends later in the year after the full effects of the Covid 19 economic damage has been assessed.  We'll track reinstatements if and when they occur.  Companies cutting their dividends have been centered in three industries: Travel and Leisure, Oil and Gas, and Retail.  Among the big names that have announced cuts or suspensions are Ford Motors, Delta Airlines, Marriott, Carnival Cruise Lines, GAP, Occidental Petroleum, and Boeing.
        As you will note in the table above, 10 companies have raised their dividends during this time.  The biggest hikes so far have come from Dollar General at 12.5% and General Dynamics at 7.84%.
        We have long believed that dividends are the linchpin tying individual investors and corporations together.  With stocks careening all over the place, it would appear that traders and speculators are betting that companies will break this bond.  We believe the bond will hold and provide an undergirding to the overall stock market.  

Greg Donaldson, Founder
Donaldson Capital Management