- Media headlines have growled that dividends were dying or dead for most of the last three months
- Yet, few in the crowd of 'Divi-Don'ters' have bothered to chronicle the 'Divi-Doers.'
- That's a shame because there is a splendid story in Divi-Do land.
On April 7, we made the following statement:
"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."
Early on, over 20 S&P 500 companies announced dividend cuts, mostly in retail, energy, and travel and entertainment. In late March, estimates of dividend cuts by some observers for S&P 500 companies were as high as 35%. But soon company after company began announcing that they intended to pay their dividends. But that wasn't all; a surprising number of companies announced dividend hikes. The table below shows the dividend actions of S&P 500 companies made from January through June 6, 2020.
"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."
Early on, over 20 S&P 500 companies announced dividend cuts, mostly in retail, energy, and travel and entertainment. In late March, estimates of dividend cuts by some observers for S&P 500 companies were as high as 35%. But soon company after company began announcing that they intended to pay their dividends. But that wasn't all; a surprising number of companies announced dividend hikes. The table below shows the dividend actions of S&P 500 companies made from January through June 6, 2020.
S&P 500 Company Dividend Actions
Through June 6, 2020
So far 47 companies have cut, suspended, or omitted their dividends. That represents about 10% of the Index, but only about 3% of total dividend payments. Wall Street now estimates that total S&P dividends for calendar year 2020 will fall approximately 2.5%.
The reason the percentage total dividend cuts for the Index will be small is the 146 offsetting companies that are hiking dividends. In addition, some of the dividend cutters, such as TJ Maxx, have announced they will reinstate payouts once they have assessed the damage from the quarantine. The dividend hikes have a median growth rate of almost 8%.
In analyzing the cash flows of hundreds of dividend-paying companies, it is clear many will be borrowing to pay their dividends. That would have seemed like folly in a time of such great uncertainty. We believe this commitment to paying a dividend is not well understood by many investors. Companies know that many of their shareholders count on dividend payments to pay their bills. They also know that millions of individual investors and thousands of dividend etfs and mutual funds will sell any stock that cuts their dividends. Finally, these companies have experts advising them on the effects of the coronavirus and its impact on the economy both in the short run and in the long run. These companies would not borrow to pay dividends if such an action would imperil their firm. They are taking such actions because they have concluded that the doomsday scenarios spun by many politicians, media, financial analysts, and so-called scientists are far too pessimistic. Life will go on, and as people return to the streets, business will come alive again.
Think of it--almost 90% of S&P 500 companies that were paying a dividend before the coronavirus struck are still doing so in the face of the most horrific headlines since the 1930s. Of this number, over 40% raised their dividends. That's actual money going out the door. Either these Divi-Do companies are daft or prescient. We vote prescient.
The reason the percentage total dividend cuts for the Index will be small is the 146 offsetting companies that are hiking dividends. In addition, some of the dividend cutters, such as TJ Maxx, have announced they will reinstate payouts once they have assessed the damage from the quarantine. The dividend hikes have a median growth rate of almost 8%.
In analyzing the cash flows of hundreds of dividend-paying companies, it is clear many will be borrowing to pay their dividends. That would have seemed like folly in a time of such great uncertainty. We believe this commitment to paying a dividend is not well understood by many investors. Companies know that many of their shareholders count on dividend payments to pay their bills. They also know that millions of individual investors and thousands of dividend etfs and mutual funds will sell any stock that cuts their dividends. Finally, these companies have experts advising them on the effects of the coronavirus and its impact on the economy both in the short run and in the long run. These companies would not borrow to pay dividends if such an action would imperil their firm. They are taking such actions because they have concluded that the doomsday scenarios spun by many politicians, media, financial analysts, and so-called scientists are far too pessimistic. Life will go on, and as people return to the streets, business will come alive again.
Think of it--almost 90% of S&P 500 companies that were paying a dividend before the coronavirus struck are still doing so in the face of the most horrific headlines since the 1930s. Of this number, over 40% raised their dividends. That's actual money going out the door. Either these Divi-Do companies are daft or prescient. We vote prescient.
Sources: Bloomberg, Marketbeat, Seeking Alpha
