The Worst May Be Behind Us For Coronavirus Recession Dividend Cuts
Summary
- There are signs the worst may now be behind dividend investors.
- The best evidence is the rate at which dividend reductions and suspensions are being announced has considerably slowed from the torrid pace we were observing earlier in the quarter.
- A quick review of the types of firms announcing dividend cuts and suspensions reveals that more than half are Real Estate Investment Trusts (REITs).
The number of dividend cuts being announced each day in the U.S. stock market began to explode in response to the developing coronavirus recession on 16 March 2020. Three months later, there are signs the worst may now be behind investors.
The best evidence of that change in affairs may be seen in the following chart tracking the cumulative number of dividend cuts and omissions announced during 2020-Q2, where from Day 62 through Day 76 (1 June 2020 through 15 June 2020), the rate at which these dividend reductions and suspensions are being announced has considerably slowed from the torrid pace we were observing earlier in the quarter.
So far in the first half of June 2020, we've counted 15 firms announcing dividend cuts or suspensions in our sampling of dividend declarations, far fewer than we've seen during similarly long blocks of time during the past three months. Here is the full list of U.S. firms either announcing dividend cuts or suspending their dividends from our regular sampling of dividend declarations during the first half of June 2020.
- Flexsteel Industries (NYSE: FLXS)
- A.H. Belo (NYSE: AHC)
- Oxford Square Capital (NASDAQ: OXSQ)
- Helmerich & Payne (NYSE: HP)
- Urstadt Biddle Properties (REIT-Retail) (NYSE: UBA)
- Annaly Capital Management (REIT-Mortgage) (NYSE: NLY)
- Chimera Investment (REIT-Mortgage) (NYSE: CIM)
- Dynex Capital (REIT-Mortgage) (NYSE: DX)
- The Children's Place (NASDAQ: PLCE)
- Monroe Capital (Mortgage) (NASDAQ: MRCC)
- Redwood Trust (REIT-Mortgage) (NYSE: RWT)
- Plymouth Industrial REIT (REIT-Industrial) (NYSE: PLYM)
- Independence Realty Trust (REIT-Residential) (NYSE: IRT)
- Permianville Royalty Trust (NYSE: PVL)
- Ready Capital (REIT-Mortgage) (NYSE: RC)
A quick review of the types of firms announcing dividend cuts and suspensions reveals that more than half are Real Estate Investment Trusts (REITs). Firms in the oil and gas industry and in the financial service industry tied to take second place at two each, with single firm entries in three other industry sectors to round out the list. Overall, the breadth of negatively impacted industries in the first half of June 2020 is also the smallest we've seen over similar periods of time during the last three months.
When the stock market is relatively healthy, we would expect to see 25 or fewer dividend cuts announced during the course of a single month. Since we're already more than halfway to that mark, we consider the number of dividend cuts being announced in the month to date to be elevated, though the number of dividend cutting firms is growing at a much slower pace than we've seen since mid-March 2020.
Is the worst now behind us for coronavirus recession-related dividend cuts?
About the Data
We recognize the above list includes a number of firms that pay variable dividends linked to their earnings and cash flows, which given the current market environment, is an irrelevant consideration that makes people who quibble over such trivia look incredibly foolish. In the current environment, the dividends for these firms are down because their operating environment has deteriorated since their last dividend distribution, just as it has for the firms that set their dividends independently of their earnings and cash flows who are also announcing dividend cuts and suspensions.
References
Seeking Alpha Market Currents Dividend News. [Online Database]. Accessed 15 June 2020.
Wall Street Journal. Dividend Declarations. [Online Database]. Accessed 15 June 2020.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.
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