June 22, 2024

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15 Dividend Cuts and Suspensions Chalked Up to the Coronavirus

Most investors buy dividend stocks for the consistent income they generate. Whether we’re talking about Achievers, Aristocrats or Kings, or just plain ol’ dividend payers, their income provides certainty in an uncertain world.

That is, of course, until the dividend cuts and suspensions start rolling in.

The global COVID-19 coronavirus pandemic has thrown a wrench into corporate dividend programs as companies of all sizes scramble to raise cash and fortify their finances. As the coronavirus has gained momentum here in the U.S., dividend investors have become concerned about the sustainability of their regular income payments – and rightly so.

Inevitably, just like the Great Recession of 2008, companies one by one have begun suspending or cutting their dividends as part of their plan to fight the negative effects of this pandemic on their businesses.

Here are 15 dividend stocks that have recently announced dividend cuts or suspensions, and what they plan to do to keep operations running until they get through to the other side. As you’ll soon see, some industries have been more swiftly and severely impacted than others.

Boeing (BA, $180.55) sought out tens of billions of dollars in U.S. government loan guarantees to prop up the company and its supply chain. Thus, many already expected BA to announce dividend cuts or a suspension. Boeing broke the news March 20, saying it had paused its payout and would continue a hold on its stock buybacks that began in April 2019.

CEO Dave Calhoun and Board Chairman Larry Kellner will forgo all compensation until the end of 2020, too.

The company’s quarterly dividend of $2.055 per share would have represented a healthy 4.6% annual yield at current prices. In 2019, Boeing paid out $4.6 billion in dividends. Unfortunately, it had operating cash flow of negative $2.4 billion last year – a complete reversal from 2018, when it achieved record cash flow of $15.3 billion – thanks in large part to the continued woes of its 737-Max aircraft.

You don’t make such a big ask of Congress without making some acknowledgment that reflects the seriousness of your request. Boeing’s dividend suspension was an absolute must.

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Market value: $26.8 billion

Action: Dividend suspension

Annual dividend prior to change: $1.92 per share

Like Boeing, Marriott International’s (MAR, $82.81) March 18 suspension of its 48-cent dividend wasn’t a big surprise to anyone following what’s happened to the travel industry.

CEO Arne Sorenson has said that demand at the company’s hotels has declined dramatically. In China, despite the fact the number of closed hotels has fallen to 30 on March 18 from 90 a month earlier, occupancy remains under 15%. In North America, occupancy rates have dropped from 70% in mid-February to 25% on the day of its announcement.

Of Marriott’s $4.5 billion revolving credit facility, it still has $2 billion available to draw upon if needed. That said, it only had $225 million in cash on its balance sheet as of the end of December. To preserve cash, it also will pause all share repurchases until further notice, reduce its payroll and cut back on investment spending.

In 2019, Marriott paid out $612 million in dividends. That’s almost 23% of its operating costs and expenses, excluding reimbursed expenses. Thus, even dividend cuts would’ve raised a significant amount of cash flow in this difficult period, but Marriott decided to go all the way.

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Market value: $20.8 billion

Action: Dividend suspension

Annual dividend prior to change: 60 cents per share

Ford (F, $5.25) was one of the first S&P 500 companies to announce a move on its dividend. Ford’s yield had been ballooning for years because of share-price declines (Remember: Yields and stock prices move in different directions), and had reached 7.5% even at the peak of the bull market. Some experts were already predicting dividend cuts in Ford’s future. F shares were yielding 11.5% on March 19, when it announced it would suspend its 15-cent quarterly dividend.

As part of the company’s desire to build a financially sound business that can withstand whatever the coronavirus throws at it, Ford is also drawing down $15.4 billion from its two lines of credit.

“They maxed out their credit line, so they have well over $30 billion in cash now and that is a massive hoard,” David Whiston, an analyst with Morningstar in Chicago, told Bloomberg. “That, along with the dividend suspension, basically puts Ford in lockdown mode. They’re going into their bunker.”

Indeed, Ford shut down production at its North American plants on March 18. It now says it plans to reopen them as early as April 6, but that’s a week later than its initial March 30 projection. That date could get pushed back even farther depending on the status of the COVID-19 outbreak in the U.S.

While the Ford family likely isn’t happy about a dividend suspension, Whiston believes the payout could come back later in 2020. But for now, considering its shuttered production and an already weak automotive industry before the coronavirus, the dividend suspension seemed a no-brainer for CEO Jim Hackett.

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Market value: $20.3 billion

Action: Dividend suspension

Annual dividend prior to change: $1.61 per share

Delta Air Lines (DAL, $31.70) suspended future dividend payments and share repurchases March 20 as part of efforts by the airline to shore up liquidity during this unprecedented time in commercial aviation history. The airline’s 40.25-cent quarterly dividend would have yielded 5.1% based on Delta’s current share price.

As part of its move to provide liquidity for the airline, Delta has entered into a $2.6 billion secured credit facility to help offset the $50 million it’s burning through on a daily basis. (DAL estimates that its June quarter will see an 80% reduction in revenues over the same period last year, which will take a deep toll on cash.) That’s in addition to drawing down $3 billion of its $3.1 billion revolving credit facility. The company finished the end of December with $2.9 billion in cash on its balance sheet.

Delta paid out $980 million in dividends and $2.0 billion in share repurchases in fiscal 2019. Over the past three years, Delta returned $7.9 billion to shareholders. That money surely would have been useful in this crisis.

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Market value: $10.1 billion

Action: Dividend suspension

Annual dividend prior to change: 20 cents per share

Copper and gold producer Freeport-McMoRan (FCX, $6.99) announced March 23 that it would suspend its 5-cent-per-share quarterly dividend effective immediately, resulting in the cancellation of its quarterly payment on May 1. Based on its current share price, Freeport’s stock would be yielding a decent 2.9%.

Even last summer, long before the coronavirus came into play, FCX’s payout looked shaky, and we flagged it among stocks whose income payments could be in danger of dividend cuts.

In addition to the dividend suspension, Freeport-McMoRan will review its operating plans at every one of its mines in North America, South America and even at Grasberg in Indonesia, one of the world’s largest deposits of copper and gold. This could result in a reduction in copper and molybdenum production at its operations in the Americas.

As of the end of December, Freeport had more than $2 billion in cash on its balance sheet and $3.5 billion available under its revolving credit facility. Freeport paid out $291 million in dividends last year.

Copper prices have fallen significantly in 2020, and they could fall further as a result of a global economic slowdown due to the coronavirus. Although Freeport has a strong balance sheet, the fall in copper prices made the dividend suspension a sensible one.

SEE ALSO: 11 Best Stocks to Ride Out the Coronavirus Outbreak

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Market value: $7.4 billion

Action: Dividend suspension

Annual dividend prior to change: $3.52 per share

March 19 was a busy day for Darden Restaurants (DRI, $60.56), the parent of Olive Garden, LongHorn Steakhouse, Yard House and five other banners. It announced its third-quarter results – and the suspension of its 88-cent quarterly dividend as part of its response to COVID-19.

In addition to pausing its dividend, Darden is drawing down the entire amount of its $750 million revolving credit facility. Between the credit facility and cash on its balance sheet, Darden will have approximately $1 billion on hand to fight the prevailing business conditions as a result of the coronavirus.

For the quarter ended Feb. 23, Darden reported year-over-year same-store sales growth (an important retail and restaurant metric for locations open at least 12 months) of 2.3% across all eight of its brands. During the first three weeks of its current quarter, due to the coronavirus, same-store sales declined by 5.9%, including a 20.6% drop in the week ended March 15.

That last number indicates just how serious company boards must take this crisis. Darden was wise to shore up its cash position.

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Market value: $682.3 million

Action: Distribution suspension

Annual distribution prior to change: 80 cents per share

Bloomin’ Brands (BLMN, $7.84) – the company best known for the Outback Steakhouse chain of restaurants, but also owns Carrabba’s Italian Grill, Bonefish Grill and other brands – suspended its quarterly 20-cent dividend March 20. BLMN shares would have yielded 10.2% at today’s prices.

The restaurant operator reported that it has more than $400 million in cash on its balance sheet after drawing down “substantially all” of its revolving credit facility. That money will give the company financial flexibility to fight the revenue shortfalls created by COVID-19.

Bloomin’ is not only building a stronger financial fortress to withstand what the shutdown brings, but it’s also doing everything within its power to keep its take-out and delivery services operating during this crisis. In addition, where possible, it will provide limited in-restaurant dining. However, given how fast the coronavirus is spreading, it might not be realistic to maintain even this level of service.

In fiscal 2019, Bloomin’ paid out $36 million in dividends and spent $107 million in share repurchases. It has not yet said whether it will suspend stock buybacks.

SEE ALSO: 11 Defensive Dividend Stocks for Riding Out the Storm

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Market value: $296.8 million

Action: Dividend suspension

Annual dividend prior to change: 52 cents per share

BJ’s Restaurants (BJRI, $15.44), the restaurant operator known for its various BJ’s-named chains and their ample craft beer selection, announced March 23 that it was deferring its 13-cent quarterly dividend that was scheduled to be paid a day later. In addition, it has suspended any future dividends until it feels the coronavirus situation has improved to a degree that it warrants resuming its dividend payment.

Based on its current share price, BJ’s dividend prior to the deferral would have amounted to a reasonably attractive 3.4% yield.

BJRI has a $250 million line of credit, of which $50 million may be used for letters of credit. It has borrowed $140 million of the remaining $200 million and used $18 million of the $50 million for letters of credit as of the end of December. It plans to draw down the remaining $92 million of the $250 million for precautionary measures. BJ’s also has $95 million in cash on its balance sheet.

Designated a non-essential service, BJ’s revenues will be limited during the remainder of the coronavirus pandemic. Preserving cash makes sense under these circumstances.

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Market value: $1.8 billion

Action: Dividend suspension

Annual dividend prior to change: $1.51 per share

Macy’s (M, $5.99), which a few Wall Street pros had suspected would be forced into dividend cuts because of its business issues, delivered its response to COVID-19 on March 20. Actions taken by the department store to maintain financial flexibility included suspending its quarterly 37.75-cent dividend. It will, however, make the April 1 payment it had previously scheduled.

Last year, Macy’s paid out $466 million in dividends. Thus, that’s $117 million per quarter it can use to remain afloat.

Macy’s also will draw upon its entire $1.5 billion revolving credit facility to bolster its cash position. And the retailer is reviewing all non-essential operating expenses to find ways to slow spending during these uncertain times. Macy’s also will cut its capital expenditures in 2020, and its “Polaris” turnaround plan is now on hold.

As of Feb. 2, 2020, Macy’s had $685 million in cash and cash equivalents on its balance sheet. Together, with the $1.5 billion from its credit facility, the retailer will have close to $2.4 billion in cash to ride out this crisis.

Macy’s closed its stores on March 18, and they will remain closed until at least March 31. Should the closures stay in effect past that date, the retailer’s first quarter of 2020 should be ugly indeed.

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Market value: $2.8 billion

Action: Dividend suspension

Annual dividend prior to change: $1.48 per share

Nordstrom (JWN, $17.93) followed Macy’s decision to suspend its dividend three days later. By suspending its 37-cent dividend starting in the second quarter, the department store will save approximately $58 million per quarter based on 156.4 million shares outstanding.

JWN is targeting as much as $500 million in savings from cuts in operating expenses, capital expenditures and working capital. That’s on top of its original plan to cut as much as $250 million in fiscal 2020.

Nordstrom finished its fiscal 2019 ended Feb. 1, 2020, with $853 million in cash. The retailer plans to draw down all of its $800 million credit facility to provide it with an extra cushion. It can increase the credit facility by $200 million by obtaining written consent from its lenders.

The company closed all of its stores on March 16. On March 23, JWN announced it would extend the closures until April 5. It will continue to assess the situation on a daily basis.

While shareholders will miss the dividends, this was a prudent measure for any retailer not considered an essential service.

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Market value: $11.5 billion

Action: Dividend cut (to 44 cents per share annually)

Annual dividend prior to change: $3.16 per share

Oil and gas exploration and production company Occidental Petroleum (OXY, $12.56) was one of the earliest dividend cuts. OXY slashed its payout by 86% on March 10, from 79 cents per share to just 11 cents. This was the company’s first dividend cut in 30 years, and it wasn’t taken lightly. Things have gotten so treacherous for Occidental that its 2.7% bonds due in 2022 are trading at a 40% discount.

To be fair, Occidental’s (and the energy sector’s) woes aren’t entirely on the coronavirus. While COVID-19 certainly has weighed on demand and thus prices, Saudi Arabia’s sudden move to discount its oil sales further have also hit the sector hard.

In addition to saving $609 million in quarterly dividend payments, OXY plans to cut its capital spending in 2020 by almost 50% to between $2.7 billion and $2.9 billion, down from its original plans between $5.2 billion and $5.4 billion. Occidental also will reduce its operating costs by at least $600 million in 2020. That’s on top of the $1.1 billion in synergies it planned to achieve this year.

Occidental finished fiscal 2019 with $3.0 billion in cash on its balance sheet and the entire amount of its $5 billion credit facility to draw upon if needed.

However, it will still have to pay $800 million per year in preferred dividends to Warren Buffett, who invested $10 billion in the company in 2019 as part of its acquisition of Anadarko Petroleum.

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Market value: $2.2 billion

Action: Dividend cut (to 10 cents per share annually)

Annual dividend prior to change: $1.00 per share

A couple of days after Occidental cut its dividend, Houston-based Apache (APA, $5.76) announced a 90% dividend cut, from 25 cents quarterly to 2.5 cents. Based on its current price, APA stock yields 1.7%.

In addition, Apache plans to reduce its capital spending by 37% in 2020 from $1.75 billion at the midpoint to $1.1 billion. It also will bring its rig count in the Permian basin to zero as a way of limiting its exposure to short-cycle oil projects. Its operations in Egypt and the North Sea are expected to see reduced activity in the near term, too.

2020 looked like it would be a difficult year to begin with, as we warned in December that analysts weren’t high on the company’s earnings prospects. The massive collapse in oil prices this year sealed the deal.

The company has access to 100% of its $4 billion revolving credit facility and finished the fiscal year with $247 million cash on its balance sheet. In 2019, Apache paid out $376 million in dividends. That money will come in handy during its self-imposed work slowdown.

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Market value: $1.8 billion

Action: Dividend cut (to 40 cents per share annually)

Annual dividend prior to change: $3.64 per share

Midstream services company Targa Resources (TRGP, $7.65) is another energy stock whose dividend safety was in question earlier this year. And indeed, it announced March 18 that its board agreed to dividend cuts: an 89% reduction, to be precise, from 91 cents per share quarterly to 10 cents for May’s Q1 payout.

The move provides Targa with $755 million in additional cash flow that it can use to pay down debt, and it reduces the current yield to 5.2% on an annualized basis.

Like many in the energy business, Targa is cutting its 2020 net growth capital expenditures, from $1.25 billion at the midpoint to $850 million – a reduction of 32% over its original plan for the year. It also is working to find savings internally to reduce the outflow of cash. As for 2021, TRGP plans to reduce its capital expenditures by 76% to $250 million.

Targa had $331 million in cash as of the end of December, $235 million available under the company’s revolving credit facility and $2.1 billion available under the revolving credit facility of Targa Resources Partners LP.

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Market value: $843.7 million

Action: Distribution cut (to $1.56 per share)*

Annual distribution prior to change: $3.12 per share

DCP Midstream LP (DCP, $4.05) is a midstream master limited partnership (MLP) that announced a cut to its quarterly distribution in March. The Denver-based company said March 23 that it was reducing its quarterly distribution by 50%, from 78 cents to 39 cents. The move delivers $325 million in cash, which DCP will use to reduce its debt. The stock still yields a wild 38.5% based on current prices.

In addition to cutting its dividend, DCP will reduce its 2020 growth capital program by 75% to $150 million, down from its original guidance of $600 million at the midpoint. As part of this reduction, DCP is deferring its option to buy 30% of Phillips 66’s (PSX) Sweeny Frac 2 and 3 projects.

At the end of December, DCP had $1.19 billion available on its $1.4 billion revolving credit facility. With the permission of its lenders, it also can increase its revolver by $500 million.

* Distributions are similar to dividends but are treated as tax-deferred returns of capital and require different paperwork come tax time.

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Market value: $1.7 billion

Action: Dividend suspension

Annual dividend prior to change: 56 cents per share

Lastly, travel software business Sabre (SABR, $6.26), which early on was one of the worst stocks amid the coronavirus outbreak, announced a number of moves March 20 as part of its efforts to withstand COVID-19’s effect on the travel industry.

Not only is Sabre suspending quarterly dividend payments subsequent to its March 30 payment, it’s also suspending its stock buyback program and reducing the base compensation pay for its U.S.-based salaried workforce. That includes a 25% reduction in the compensation for CEO Sean Menke.

These and other changes will remove $200 million in cash costs from its business in 2020. Sabre also is drawing down its $375 million revolving credit facility. This will provide Sabre with about $811 million in cash available to utilize during this crisis. Furthermore, its credit agreement allows it to suspend its financial covenants if a “Material Travel Event Disruption” has occurred.

The 14-cent quarterly dividend payment would’ve represented a nearly 9% yield at current prices.

SEE ALSO: The 20 Best Stocks to Buy for 2020


Copyright 2020 The Kiplinger Washington Editors

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