Your once sacred quarterly dividend check may be a thing of the past (for now) as the coronavirus pandemic forces Corporate America to rethink how they allocate precious cash.
A total of 18 S&P 500 companies have announced dividend cuts since March 1, according to Bank of America Global Research. Some of the biggest names to rework their dividends so far include Ford (suspended it) and Delta Air Lines (suspended it).
To date for the second quarter, there has been 57 actions as it pertains to dividend payouts, notes S&P Global senior index analyst Howard Silverblatt. Forty of the actions have been dividend suspensions, amounting to a net decline in payouts of $4.8 billion.
BofA’s analysts see “elevated” dividend risk for an additional 30 S&P 500 companies and overall four times the risk they saw at the end of 2019. Most of the sectors at risk for dividend cuts are the beat up energy and consumer patches as stunted consumer demand zaps interest in buying oil and discretionary goods. These sectors also have considerable debt — cash may have to be used for early repayments amidst the current uncertain climate.
The investment bank thinks 10% of the S&P 500 is at risk of cutting dividends — the announcements are likely to begin in earnest in coming weeks during earnings season. For its part, strategists at Goldman Sachs think 25% of S&P 500 companies could slash dividends this year.
This comes after a bumper start to 2020 for dividends.
First quarter dividends set a new record, paying $127 billion versus $117 billion a year earlier, per S&P Global data.
It’s unclear how unsettling dividend cuts will be to the stock market.
Investors have relied on a steady stream of dividends from the world’s biggest companies for decades. Those big companies very often pride themselves on steadily increasing their dividend payouts in good times and in bad times. Now investors may have to reassess whether to hold onto usually slower growing dividend paying stocks (think consumer staples, energy, etc.) — whose growth could be walloped by the aftershocks of the coronavirus.