- 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
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
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
