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
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Dividend Decreased
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43
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10
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18
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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
