Entering text into the input field will update the search result below

2020 Dividend Cuts - Coming To A City Near You

May 07, 2020 1:25 AM ETBPZZF, SKT, SPG, OYIEF, GTN, BPF.UN:CA36 Comments


  • The coronavirus crisis will likely go down in my own investment history as one of the periods where my overall portfolio dividend coverage sank the most.
  • This is due to significant capital still being allocated to stocks at an excessive yield and payout ratios which, due to COVID-19, may (and should) cause the dividend to be cut.
  • In this article, I look at the companies where I expect dividend cuts going forward in my own portfolio and how this will impact my overall coverage and finances.
  • In the end, very few or no companies are truly "safe" dividend stocks - and this should guide your investment logic as you go forward.

I've considered a few titles for this article over the past few weeks, but I settled on the one it has now - just the right amount of reader appeal, I feel, and it represents accurately what I believe we as dividend investors can expect going forward.

Let's dive straight into what's happening.

What's happening with our dividends?

For many years, some dividend investors have espoused a philosophy where their stance might be, "I don't sell stocks unless they cut their dividend - in which case, I sell everything in the company."


(Photo Source: Meme Generator)

In the beginning of my rather short (until now) investment career during the advent of the last financial crisis, I considered long and hard whether this was a philosophy I wanted to include in my own investments. Mind you, back then I was a babe in the woods and hadn't yet formulated some of the most basic parts of my strategy. I also didn't have much capital. It would take until years later until I had what I now consider to be the fundamentals of my portfolio.

However, I believe the stance I just mentioned is so common that you've probably heard it quite often if you read dividend investors reports, blogs and articles from time to time.

As such, it will be interesting to see how these investors cope with the recent slew of news. Forget oil companies like Shell (RDS.B) or Occidental Petroleum (OXY), or stalwart real estate companies like Simon Property Group (SPG) which some claimed would never cut the dividend and have, or may very well do. We're talking about companies like the Walt Disney Corporation (DIS), which are, as of yesterday, not paying 1H20 dividend, effectively cutting their FY20 dividend

This article was written by

Wolf Report profile picture

Wolf Report is a senior analyst and private portfolio manager with over 10 years generating value ideas in European and North American markets.

He is a contributing author for the investing group iREIT on Alpha where in addition to the U.S. market, he covers the markets of Scandinavia, Germany, France, UK, Italy, Spain, Portugal and Eastern Europe in search of reasonably valued stock ideas. Learn more.

Analyst’s Disclosure: I am/we are long BPZZF, SKT, SPG, CMCSA, DIS, FRT, MDP, RDS.B, O, OMC, SYY, OYIEF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

While this article may sound like financial advice, please observe that the author is not a CFA or in any way licensed to give financial advice. It may be structured as such, but it is not financial advice. Investors are required and expected to do their own due diligence and research prior to any investment. I own the European/Scandinavian tickers (not the ADRs) of all European/Scandinavian companies listed in my articles.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (36)

Veritas1010 profile picture
Thank you @Wolf Report for your article.

I agree with @Rom2894 that if you are wise enough to be diversified you’ve probably had a more attenuated dividend income stream.

The corollary is risk being overweight and having the inevitable fly swatter of life smack you down...I took it on the chin with $RDS.B and sold out a few days ago. I’ll recoup. As for $DIS I own it to but in the “diversified” way that its impact to me is minimal. The dividend was not my primary reason to own Disney.

I am looking at more renewables going forward that are solid and pay some dividends.
Nice article. To a very large extent I could have written the same article. I also have a considerable diversification with most securities no more than 1.1% - 1.5% of total portfolio with only one approaching 5% due to appreciation. I currently have 65 dividend paying securities spread across 13 sectors (by my own sector definition). The largest sector represents 15% of portfolio. The 2020 dividend cuts so far amount to 12.5% of my anticipated dividend total for 2020, I have done some estimating and basically expect this to reach about 20% dividend reduction by the end of the year. The "average" dividend cut is currently 66%. I have yet to sell any security based on a dividend cut. This may happen, but I need more time to see why and where.
hawkeyec profile picture

I have come to the same conclusion you have about dividend reductions, 15-20% down by year end. It is what it is. My portfolio spans three private trust accounts. Two of those are up for the year and will suffer no net cuts. That's 40% of my total. In the third trust 20% of the holdings are very solid individual fixed income holdings. That leaves me exposed on about 45% of my total. A 20% loss of income there would mean around 10% or less on the total, so not too bad, given the scope of the problem.

I would point one one thing, just having a bunch of stocks only provides one kind of diversification, that for non-systematic (company risk) and only if all the companies are uncorrelated with each other. Having five different oil stocks is unlikely to provide diversification. And for stocks as a group, no matter how many you have they are still subject to systematic (market) risk. To get more diversification and reduce systematic risk you need to hold several different kinds of assets whose markets are uncorrelated. Even then, most of us, including me, are probably much less diversified than we think. Also, it is good to remember that the more diversified one is, the less sexy will be the returns. Diversification lowers risk but it also lowers return. There is no escape from that. It's in the math. If it seems that you are cheating the risk-return curve then something is not really diversified.
Wolf Report profile picture

Thanks for commenting! Sounds similar to my own situation, though my total dividend cuts at this time are lower. (at least until now).

Stay safe out there!
Wolf Report profile picture

Indeed. I've looked into investing in other asset classes for a long period of time, and through a company i run i could be argued to be diversified into actually owning real estate. I have yet to find something else that appeals however, as i don't really find gold or anything like that to be an appealing investment.

Thanks for commenting!
BM Cashflow Detective profile picture
Good article with inspiring portfolio concept. I diversify too, but not with fixed capital allocations. For example, I wouldn't sell shares just because the proportion in the portfolio exceeds the limits that I arbitrarily set myself. Otherwise, the concept is well thought out. In principle, I act very similarly with my investment philosophy. In the case of dividend cuts, I don't sell automatically, but always check the individual case. Basically, I rarely sell. And only if I have an investment alternative. I also rarely keep larger amounts of cash.
Wolf Report profile picture
@BM Cashflow Detective

I personally wouldn't rebalance just because a position exceeds my portfolio Yield. At certain times, companies like Skanska and Castellum have actually exceeded my portfolio yield by some small degree. No absolutes, not even in this.

Perhaps if a company were to rise to 7-9% i would consider cutting it because of this, but i doubt this will ever happen. The reason being that my concept "caps" upsides, i invest too conservatively in terms of companies and potential capital appreciation, and the dilutive effect of at least 4000-5000 USD per month is enough to keep even the larger positions rather "level" in a bull market.

At least until now :).
Guraaf profile picture
I didn't understand this remark:

"why I don't hold more than 5% in any one stock, and hold no more than 4% in 6 holdings in total. "

If you hold about 4.9% in one stock then you are already more than 4% in 6 holdings in total even if 5 other are 0%.
Wolf Report profile picture

Clumsy phrasing, i apologize. What i mean is that no more than 6 individual holdings have a portfolio allocation of more than 4% each - the other holdings in my portfolio are less than 4% individually.
Guraaf profile picture
Thanks. Understood.
Hi Wolf. I bought EIF after reading your article on the company from April 8th. The stock has rebounded nicely, but just wondering if you have any more thoughts on the sustainability of this company's dividend? Thanks for all your insights. Writing from just outside Ottawa, ON.
Wolf Report profile picture
@user 703

From everything i know and from my contacts with company management, EIF's earnings are well-insulated from Corona due to government contracts ith medevacs, transports and other airline services which are completely unconnected to the corona scare. EIF has income, and plenty of access to cash.

That being said, it's manufacturing and leasing arm is suffering.

I view the dividend as safe, but EIF is a too small company to compare with some of the truly bigger stocks we invest in. As such, my advice would be to look at other things first at this time. A cut can ALWAYS happen.

I do not believe EIF will cut however, or they would have done so already.
Thanks so much for your quick and detailed response Wolf.
optomos profile picture
Thanks. I had three cuts ~90\95% out of my single stock holdings; two were REIT's and the other was LNG. I'm heavy in telco and that actually saved me in this pandemic.
Wolf Report profile picture

I've had multiple cuts myself. It's harsh, but a good lesson. All of those quotes about heat/pressure forging the strongest steel applies to us as investors too, i believe. To grow, we must suffer hardship.

Corona certainly is hardship :).
Suffering with SPG, as I acquired it back in the good old days (i.e. pre February 2020). Just hope the dividend cut is not too deep.

Retired income investor
Wolf Report profile picture

If history is any indication, SPG will actually raise the dividend back up to normal levels as soon as this passes.

If company management is even more confident, there may not even be a cut.

Monday will tell!
GE Smith profile picture
Appreciate your updates, @wolf Report. As an aside, Boston Pizza has been falling out of favour for close to a couple of years in communities I'm familiar with - long before the virus came into view - I would recommend parting with it.
Wolf Report profile picture
@GE Smith

Thanks - good comment. My plan is to reinvest once things turn around a bit - the current price is really pricing in too much corona and i'm looking for over $10 at least before selling - but my plan is to sell here :).
Zucks profile picture
Maxel tov. You learned by experience the importance of diversification. In the last couple of years in particular it has been painful to read contributors and posters alike who have done the opposite.
Wolf Report profile picture

Yeah, i always cringe when i read about someone who has more than 10% in any one equity or company. Even worse when i have someone ask me whom i know. It could work out, but the potential damage, if we're talking life savings, is high.
Nice article here, have had 4 hits to the portfolio recently, OXY,RDS.B,WY,WRK , sold all 4 and went into PSX and VLO.
Wolf Report profile picture

Not choices i personally would have made - but stick to your guns and your goals! Good luck! :).
cemanuel profile picture
I run a 12-month projected dividend spreadsheet which I update pretty much continuously. On the last day of each month I record the amount. This number dropped 4.18% in March. It recovered .78% in April - but it's still above January 1 which is nice.

I don't have a set "philosophy" related to selling. I sold OXY following the cut but I already considered it a high risk position that I was questioning. I also sold DIS in mid-March because I thought a dividend freeze was close to certain and a cut or elimination very possible. But part of why I sold each was because of the great prices some other companies were selling for - would I have sold if the rest of the market wasn't 30-40% cheaper? I don't know. I have three other companies that cut or eliminated the dividend which I still own. And if, as I expect, SKT cuts I don't plan to sell it either.

So I guess I don't have a system for this - no, "if it cuts I'll sell" or, "once the cut is in the damage is done" sort of thinking. With this being a textbook black swan event I think it does illustrate the importance of being reasonably diversified, not just with the value of holdings but, if you plan to live off them, income/dividend diversification. For myself I feel pretty good about my diversification when looking at portfolio value but MO and T both represent over 10% of my income and ABBV isn't far behind at about 8.5%. This is something I need to think about as I close in on retirement (in 3 years or so).

Thank you for the article.
Wolf Report profile picture

Hey, thanks for your extensive comment! Sounds like a good plan. I would definitely look into both T and MO as well as ABBV however. To me personally, this sounds like bit of a risk - even if all of them are excellent companies.
cemanuel profile picture
The buffer to this is when I turn 59.5 I can roll my company retirement over to an IRA - right now all I can buy in it are MFs. It's about 35% of my total market value of investments right now. If I avoid using it to buy more of my big earners it will take care of itself somewhat. But a lot of that depends on where things are trading in February of 2022 and the following months.
I bought prison REIT GEO Group yesterday at $11.11. It means yield on cost 17%. It seems safe for now but who knows. Management expect only 10% lower earning this year but share price goes down. Disney had 90% hit to earnings and freeze the dividend but stock went up. I think thats crazy.

Im also curious if Imperial Brands will cut or not. If not than I will get 27% of my investment back in just 15 months since my purchase in December. That dividends I then reinvest in some faster growing companies with low yield but high grow both in EPS and dividends like Abbvie.
Wolf Report profile picture

Good points. I'm no longer in Prison REITs, for which i'm pretty happy at this time. Too volatile.

Not sure about imperial brands - it's the tobacco company I've stayed out of, though i own BTI, PM, MO - which i consider better & safer :).
Hah and SPG isn't? Keep up the good work.
great article thank you. Own SPG. I suspect they will cut the dividend also. Keeping it as I see it doubling or tripling in the next five years. Also, when they cut their dividend previously, they later reinstated it at the same level it was prior to the cut. So a bit of patience will likely pay off big for SPG.
I heard the argument that Shell will not cut because it didnt since WW2 again and again. But I know that past performance means nothing so I knew its a nonsence and people saying that has no clue about investing.

Maybe SPG will perform like after 2009 or not and will be flat for another 30 years. Nobody knows.
Wolf Report profile picture
@czhunter @dkrusling
Indeed. We don't know what will happen, even to the holdings we consider the very "best of the breed". This is the fallacy I've seen in many investors - the sort of blind trust towards a company resulting in a 10-20% portfolio stake. I would never trust ANY company to this degree.
I think you need to consider the counter-part risk for Ocean Yield. It's a great company, good leadership, diversified backlog (though they could do with improve in certain segments - like gas carriers. But the fact is that:
1) they are still trying to branch out their earnings after growing over reliant on their FPSO which is now dead in the water
2) their counterpart risks in container shipping, car shipping and oil is substantial.

Their two largest clients in MSC and Höegh (which accounts of 23% of their backlog) are in serious trouble, and the contracts can be voided.

If this happens, I don't think a recession and the current pandemic is the best time to get car carriers and container ships back on contract.

I like the company. I own the company, but it's important to be realistic.
Wolf Report profile picture

Excellent counter-points, and all true. :)

That's also why my position is limited, and why I've slowed investments into the business at this time, fundamentals notwithstanding.
what are the operations cost for SKT ? on extreme end, $600mil and burning on dividends simply would go for 6 years assuming no cut ?
Wolf Report profile picture
A lot of factors there - i'd look at one of the articles on SKT that goes more in-depth on these factors, given that maintenance CapEx is unlikely to be static in an environment like this.

It's definitely something to look at prior to considering SKT though.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!

Related Stocks

SymbolLast Price% Chg
Boston Pizza Royalties Income Fund
Tanger Inc.
Simon Property Group, Inc.
Ocean Yield ASA
Gray Television, Inc.

Related Analysis

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.