Caution: We Are Entering A "Prove It" Market

 

• In my recently released book, The HIdden Power of Rising Dividends,(available at Amazon) I make the case that dividend growth is highly correlated with price growth for many stocks and indices.

• In the book, I suggest that dividend growth alone is highly correlated with price growth for 25-35% of S&P 500 stocks. For an additional 50% of stocks, dividend growth is the most important indicator of value, but the correlation scores rise when we add some portion of sales and earnings growth, along with changes in interest rates.

• The consensus view of many stock market prognosticators today is that stocks, now trading at 27 time operating earnings, are extremely overpriced and are due for a big correction.

• My S&P 500 valuation model is telling a much more balanced story:

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• The above chart is what I call a Value Bar chart. The green bars show my model's annual predicted price of the S&P 500 going back to 2005. A quick look at the bar farthest to the right on the chart shows the model's current predicted price of the S&P 500. That figure is approximately 5,400. With the current price of the S&P 500 at around 6,000, the model is saying stocks are overvalued by about 10%. That, however, is before we factor in 2024 year end earnings and 2025 forward earnings.

•  Before we take a deeper look at the current predicted price, let's look back over the years to see how the model has fared.

• Simply speaking, if the red line (actual price) is above its corresponding Value Bar, we would say stocks are overvalued. If the the red line is lower that the Value Bar for the same year, we would say stocks are undervalued. For the last 20 years, the red line has stayed very close to the top of the Value Bars. A significant divergence is evident in only 2007, 2008,and 2022. In almost all other years, the Value Bars and actual prices of the S&P 500 are very close.

• Stocks continued to climb heading into the beginning of the Great Recession in 2007. At some point during the year, the model would have issued an overvalued signal. The model clearly signaled the market was overvalued in 2008.

• After the bear market of 2008 and 2009, the Value Bars stayed in fairly-valued or undervalued territory until the end of 2021, when they gave an overvalued reading. That signal correctly foresaw the selloff in 2022.

• That brings us to the current modest overvaluation. Plugging in Wall Street's current estimates of sales, earnings, dividends, and interest rates give us a figure of 6,500. 

• We are now entering what I call a "Prove It" market. This means, tech stocks, where the majority of the growth is coming from, must "Prove It" that they can continue with mid 20% sales and earnings growth. If they do, we should have another pretty good year. If not . . . .
•          

If any of you would like to discuss this article privately, please email me at info@gregdonaldson.com.

AAPL AIN'T CHEAP . . . MSFT IS

• 1. In my recent book, The Hidden Power of Rising Dividends (available at Amazon), I argue that very few individuals or professional investors are confident in how to calculate the intrinsic value of a stock.

• 2. The typical stock investor today has largely become a trend follower. Put another way, they are really momentum investors.  

• 3. I have been in the investment business for nearly 50 years, and I have learned many people who admit to being momentum investors, find that they cannot pull the trigger to buy or sell when the momentum trend changes. In failing to sell at the right time, most of them become "stuckholders."

• 4. In my many years of exploring every classical and "wild hair" investment strategy I could find, I have found that many slow-growing stocks can be valued very precisely. Most companies; however, require a deep dive into their fundamentals, looking for "tell" signals. Finally, valuing very fast-growing companies is always an educated guess at best.

• Last time, I showed valuation guesstimates on PepsiCo (PEP) and Coke (KO). These are both slow growing, high dividend-paying companies with powerful brands. My models predict that Coke (KO) is modestly overpriced and PepsiCo (PEP) is significantly underpriced when using year-ahead estimates.   

• This time I am comparing Microsoft (MSFT) and Apple (AAPL). The valuation correlation metrics for these two tech stocks are much more difficult to find because dividend growth alone does not offer high correlations for either stock. For Apple, earnings growth offer a 90%+ correlation with stock prices over the last decade, and gives us a decent guesstimate of the company's current valuation. 

• For Microsoft, it is necessary to use a proprietary valuation model that includes some portion of dividends, earnings, and interest rates. The chart below shows the remarkable tightness between MSFT's actual stock price (red line) and the model's annual predicted price, shown in green. Currently, the model says MSFT should trade at approximately $422 per share. It is currently trading for near $430. At least in this first step, MSFT would appear to be about fairly priced.

The picture for Apple indicates a bit more risk.

Apple's correlation model shows that its actual price of $239 per share, shown in red, is clearly higher than its predicted price, in green, of $206. 

Based on historical data over the last 13 years, my models are saying MSFT is selling about where it should be, and AAPL is selling nearly 15% higher than its fair value. But as I said last time, "the future is in the future" for all stocks, so we must plug in next year's estimates for both companies to determine if that makes any difference.

Using the mean forecasts from Wall Street analysts, my model predicts a year-end 2025 price of $483 for MSFT and $228 for AAPL. That would offer an approximately 12% gain for MSFT and a relatively flat rate of return for AAPL in the coming year. Indeed, selling at $239, AAPL is already trading above my modeled $228 predicted year-end 2025 price. 

I own both stocks and do not have plans at this time to sell either. However, seeing Apple's valuation does cause me some concerns that I had not thought through before I began this exercise. MSFT, on the other hand, looks even better than I would have guessed. As I said last time, this is not Wall Street research. I am using simple correlation models to arrive at the price estimates I am showing. Thus, this article should not be viewed as investment advice, but just a simple analysis of fundamental data within each company that is highly correlated with changes in its annual stock price. 

 

Simple Dividend Model Says PepsiCo Is Better Value Than Coke

1. In my recently released book, The Hidden Power of Rising Dividends, I described my 40-year journey into finding methods of valuing stocks.

2. In a recent post, I showed mathematical valuations of Coke and PepsiCo based on their last 15 years of price and fundamental data. As it turned out for both companies, dividends alone had the highest correlation with their prices over this period.

3. I chose Coke (KO) and PepsiCo (PEP) for my first valuation calculation because both are powerful brands that have won over our taste buds, grocery shelves, and portfolios. Since they are so dominant and so similar in their products and marketing, most people assume they are both always about fairly valued because they are so large and their products are a staple of everyday life for many people. 

4. Last time I showed a chart for each company as shown below. The green line on each chart is the actual annual price over the last 15 years. The red line is the predicted price my model calculates. A closer look at the two charts shows that PepsiCo's current price is about 9% lower that its predicted price, based on the correlation between its dividend and price growth over the last 15 years. Coke, on the other hand, appears to be selling about 9.5% above its predicted price using he same metrics. 

Studying the two dividend correlation charts suggests PepsiCo is clearly the better value. But, as I said last time, my dividend correlation model is looking only at historical data. The future is in the future for all stocks. So, let's take a swing at estimating the future growth of both companies. Remember, dividend growth alone trumps all other indicators for these two stocks, and in both cases the correlation between the companies' dividends and stock prices is over 90%.

 

In valuing Coke and Pepsi, I am using a simple linear regression model that measures the average changes of prices versus dividends for each company over the last 15 years, and then performs annual standard deviations to determine how tight the fit is. This model generates what is known as a correlation coefficient, or R2. Both Coke and Pepsi have R2s between annual price and dividend growth above .90. Put another way, annual changes in dividends for both companies has been able to explain over 90% of the annual changes in their stock prices. It's not perfect, but few investment professionals will be willing to bet you that this .90 correlation between prices and dividends is going to change very much in the coming year or years.  

A linear regression calculation, as the name implies, assumes that the movement of prices v. dividends will form a line. The important things about lines is they all have a slope and slopes have formulas. Thus, here in November 2024, if we have a good prediction or guess about how much each company will increase its dividends in 2025, (both have unbroken strings of increasing dividends for over 50 years) we can plug that figure into the formula and have a predicted stock price for the coming year.

PepsiCo's linear regression formula is .52+35x, where x is next year's dividend. PepsiCo's current indicated dividend is $5.42. For this analysis let's just increase PepsiCo's dividend by 7%, which is its average increase of the last five years. Here are the results of the formula:

.52+35 x 5.80 = $203.52

This simple regression model is projecting that PepsiCo's price will reach $203.52 by the end of 2025. That would be a rise in the price of over 20%. Remember, this is a model, not an analytical projection of what I think the price will be. But, with a correlation so high, one might think of it as a ballpark figure of the upside potential of PepsiCo.

Coke's dividend growth over the last five years has averaged only 3.5%. Plugging dividend growth of that level into the regression model for Coke gives us a 2025 best guess price of $67.25, only slightly above today's selling price. 

As always, this is not a Wall Street type deep dive type valuation analysis of either company, and it should not be taken as investment advice. This is just a mathematical look at financial data for both companies that has had a very high correlation over the last few years. Using this simple analysis, PepsiCo is our clear winner. 

Someone might want to break the news to Warren Buffett. He holds a tremendous amount of Coke.

Next time I will compare two other name-brand blue chip stocks in the tech industry sector. That will be a tougher challenge because dividends probably won't work as well in these companies, and I will have to dig deeper to determine is any of the companies' fundamental data have a tight correlation with prices. If there is a fit, it should also give us an idea of how fairly valued some of the techs are after their huge run over the last two years. 

Until next time.

If you would like to offer companies for me to value using this correlation process, please send me a note at info@gregdonaldson@gmail.com.

Thanks to several of you who informed me that my colors were wrong on the charts last time. 

I own Pepsico.

Using Simple Mathematical Calculations to Value Coke vs. PepsiCo

 1. In my recently released book, The Hidden Power of Rising Dividends, I described my 40-year journey into finding methods of valuing stocks.

2. My journey of valuation discovery was always about finding methods that worked, not just focusing on dividend investing, although for many companies, dividends are the best indicator.

3. Over the next few months, I am going to do a series of valuation comparisons of great companies of our country and the world. These comparisons will describe the various methods I have found to be helpful. The first two are Coke and Pepsi.

4. Coke and Pepsi are powerful brands that have won over our taste buds, grocery shelves, and portfolios. Most people are in one camp or the other, but these two companies are very similar in many ways. My blindfolded taste test can't tell them apart.

5. Since they are so dominant and so similar in their products and marketing, I have found that most people assume they are almost always efficiently priced and valued at about the same level. In this first look at the tools I have learned to use, a surprise may be in store for you.

 In valuing Coke and Pepsi, I am using a multi-stage correlation model. This model computes a correlation score, called R2, for eight different fundamental indicators for each company, such as earnings, dividends, sales, profit margin, GDP, etc., compared to changes in the company's annual stock prices. With both companies, the correlation, R2, between their annual dividends and stock prices is above 90%, and overrides the need to include any of the other fundamentals. Very simply, this means that over the last 15 years, the annual changes in the dividends for each company were able to explain 90% of the annual changes in its price. 

Next, look at each chart and note that stock prices are on the vertical axis and dividends per share are on the horizontal axis. The red line is the actual annual price over the last 15 years and the green line is the predicted price using the correlation formula. Here is where the model begins to talk. While these two companies are very similar in what they do, they are not similar in prospective valuation. PepsiCo's chart shows its current selling price of over $175.00 is well under its predicted price of $190.44. Coke's story is just the reverse. It is currently selling for over $68 per share, but its predicted price says it should sell for $63.74.

Remember, this analysis is pure math. It is not a deep analysis of each company's intrinsic value. This is just a statistically significant computation comparing the changes in each company's annual dividends with changes in their annual stock prices. Yet, with 90+% correlations for both companies, to ignore what the dividends are saying would be unwise. Indeed, these computations are saying Coke is over 15% more expensive than PepsiCo. A spread that wide would seem to favor PepsiCo at present. Next, however, we all know that the market always looks ahead. Next time I will share with you howe we can adjust the current valuations for a look into the future. In the meantime, let's just see how the the two stocks perform over the next few months.   

Dividend Watch: Divi-Do Land

• 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. 

S&P 500 Company Dividend Actions 

Through June 6, 2020

Companies Paying Dividends Paid	Companies Cutting Dividendsd	Companies Raising Dividends
363	47	146

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.  

Sources: Bloomberg, Marketbeat, Seeking Alpha           

Dividend Watch: A Bar Bet You Will Win

• Here's a bar bet you can win:  What is the ratio of S&P 500 company dividend hikes to cuts year to date?
• Oops, I forgot the coronavirus has made bars and bar betting taboo for most of us.  Save this one until they open.
• While the dividend news has been much better than almost any of your bar buddies would guess, there is some not-so-good news creeping in. 

First the good news: Through last Friday, 369 companies have paid a dividend in 2020.  Of these dividend payers, 124 increased their dividends at a median rate of 8%.  

Now, the bad news: 39 S&P 500 companies have suspended, cut, or eliminated their dividends since the first of the year.  More on this later.  

Back to the good news: Dividend hikes have outnumbered cuts by over three to one.  That tidbit of dividend news will win you the drink of your choice at a time and place when you once again can have social distance with friends and colleagues.  The financial media has been so full of bad dividend news that most people will bet just the opposite of what has actually happened.

Back to the bit of bad news: Bloomberg now estimates that cumulative S&P 500 second quarter dividends will fall by approximately 2% from last year.  Bloomberg also is now forecasting that total dividends for the S&P 500 in 2020 will be slightly less than 2019.  I'll keep you posted on changes in the estimates as we traverse the rest of the year.  

We look for dividend news to calm down for a few weeks.  Dividend news is often announced at regular quarterly earnings reporting intervals.  These meetings will not return to full throttle until July.

As the country opens and people begin to move toward some level of normalcy, the economic picture will either become clearer or even more opaque than it has been for the last three months.  We said early on that the dividend actions of major American corporations would tell us a lot about how destructive the coronavirus would likely be to the economy for the long-term.  We believe the dividend actions year to date by major American companies are telling a much more positive story than the "things will never be the same again" crowd who know very little about economics and even less about the truth. 

Sources: Marketbeat, Simply Safe Dividends, Seeking Alpha, Bloomberg, Value-Line

       

Dividend Watch: New Data Show S&P 500 Dividend Payments Still Rising

• The percentage of S&P 500 companies paying dividends continues to be much better than was predicted two months ago.
• Dividend increases are running almost 3 times that of dividend cuts.
• Many companies are specifically committing themselves to honoring their dividends.

The news on dividend payments by S&P 500 companies continues to be better than many experts predicted in the early days of the coronavirus outbreak.  The table below shows the dividend actions of companies that either made a dividend announcement from March 1 through today, or paid a dividend during this time.

Dividend Actions by S&P 500 Companies 
March-May 4, 2020

Dividend Paid	Dividend Increased	Dividend Decreased
361	98	35

We are approaching the end of the initial round of dividend actions by S&P 500 companies since the onset of the virus, and so far the news is good for the overall stock market and income investors.  We are awaiting only nine companies that pay irregular dividends, usually annual or semi-annual payers, and 16 companies that did not make dividend payments or declarations in March or April.  We should be able to log the remaining companies over the next six weeks.  Remember, seventy-nine companies do not pay a dividend. 

        Even though the number of companies cutting dividends are the most in many years, we are not even close to the number of cuts in the 2008-2009 Great Recession.  This has surprised many observers because the economic impact of the massive country-wide shutdown is having a more negative effect on the overall U.S. economy than did the Great Recession.  Of even more interest, many companies are taking the unusual step of promising their shareholders that they are committed to paying their dividends and will cut them only as a last resort. The following are statements from some of the largest companies making these types of public statements:

United Parcel (UPS): Our dividend remains a high priority and is a hallmark of our financial strength. We are confident our actions will continue to enable us to fund the business and support shareowner interest.

Coke (KO): We will of course continue to focus on protecting the progress we made on working capital and free cash flow in 2019. And in this context, our capital allocation priorities remain very much focused on investing wisely to support our business operations and continuing to prioritize our dividend. Specifically, with regard to the dividend, we currently have no intentions to change our approach.

IBM (IBM): The key here for investors I think are two questions. One, in any of these scenarios, do you still have the strength of your cash, your liquidity position to ensure that you can, one, invest in your business to make sure as you come out of this—that you can emerge stronger. And two, can you maintain your capital allocation and your commitment to our investors with regards to the dividend, and both of these [we answer] emphatically, yes.         

Starbucks (SBUX): To further enhance our financial flexibility, we have also temporarily suspended our share repurchase program and are taking steps to defer capital expenditures and reduce discretionary spending. We do not expect to reduce our quarterly dividend.

Caterpillar (CAT): "We continue to expect our strong financial position to support the dividend. As a reminder, Caterpillar has paid a quarterly dividend every year since 1933 through a variety of challenging business conditions. We remain committed to returning substantially all our free cash flow to shareholders through the cycles." – CEO Jim Umpleby

Exxon Mobil (XOM):  After all, Exxon and its predecessors have paid uninterrupted dividends since 1882, and management continues to emphasize that "a reliable growing dividend" 

remains a priority.

Chevron (CVX): “Chevron’s financial priorities remain unchanged. Our focus is on protecting the dividend, prioritizing capital that drives long-term value, and supporting the balance sheet.” – Chevron CFO Pierre Breber

        Some of these companies, such as the oil companies, would almost certainly have to borrow to pay their dividends.  That might seem risky, but Exxon recently reaffirmed their continued dividend payments, indicating that nearly 70% of their shareholders were either individuals who count on the dividend income or long-term investors who seek stable growing income. 

        The dividend story of 2020 is still in the early stages, and the recent positive trends could change if the country's economy takes too big a hit from the shutdown and the virus, but the story thus far has been much brighter than observers were predicting.  We believe this is an indication that stocks have seen their lows and will continue to push higher.
        The other bit of good news is that total dividends paid by S&P 500 companies is still higher than it was a year ago.  With few exceptions, the companies cutting dividends have not been big dividend payers compared to the average S&P 500 company.  Thus the cumulative dividend increases from companies hiking their dividends has more than offset the dividends lost resulting from the cuts, even though the cuts on a percentage basis have been higher.

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

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

 

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

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