In response to this health emergency chaos companies across a range of industries have been paring or suspending dividends to cope with the economic fallout, thus complicating the stock selection process for money managers eager to bolster their portfolios with a steady stream of income.
The dive in Crude Oil prices may have accelerated the process, raising concerns about the rock-solid dividends of companies such as Exxon Mobil (NYSE:XOM) and Chevron Corp (NYSE:CVX), which are set to report results on Friday, 1 May.
The S&P 500 dividend Aristocrats index, which tracks companies that have increased dividends annually for the past 25 yrs and includes Exxon and Chevron, has fallen about 19% so far in Y 2020 as of last week Thursday, greater than the 12.9% fall over that time for the S&P 500 total return index.
That is bad news for yield-thirsty investors at a time when payouts on US Treasuries stand near historic lows as the Fed keeps interest rates in check to stimulate the economy.
The S&P 500’s dividend yield recently exceeded the yield on the benchmark 10-yr U.S Treasury by its highest margin in almost 50 yrs.
In times like these, financial strength and dividends are 2 of the Key components in making investment selections, as it is not just the dividend yield, but the sustainability of that dividend.
Exxon’s dividend yield of 8% and Chevron’s of 5.9% are the 2nd- and 2rd-biggest in the DJIA behind only Dow Inc’s (NYSE:DOW) 8.6%, according to Refinitiv data.
Investors are likely to be more concerned now about Exxon and Chevron’s dividends than in the past, but payouts look safe for now. Debt levels for both companies remain relatively low while dividends “sit high in the financial priorities list” for management.
Other companies that have recently taken action on their dividends include casino operator Las Vegas Sands (NYSE:LVS), cruise operator Carnival Corp and apparel retailer Gap Inc (NYSE:GAP) which suspended their payouts.
This earnings season companies are having commit to the dividend or not commit, will determine some potential turnover in the shareholder base may force some turn over some stocks.
There are some companies that have held up well recently raised dividends, including consumer staples companies Costco Wholesale Corp (NASDAQ:COST) and Procter & Gamble (NYSE:PG) and diversified healthcare company Johnson & Johnson (NYSE:JNJ).
Goldman Sachs expects S&P 500 aggregate dividends to fall 23% to $398-B in Y 2020 Vs rising each year over the past 10.
Have a healthy week, Keep the Faith!