- 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
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 is 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 have more than offset the dividends lost resulting from the cuts, even though the cuts on a percentage basis have been higher.
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