The stock market somewhat recovered from the carnage it experienced in late February and March. After the S&P 500 closed at a record high of 3,386.15 on 19 February 2020, the index dropped as low as 2,191.86 (about 35%) before making its comeback. Today, the S&P 500 is trading above 3,000 again!While my DivGro portfolio also recovered nicely, I've suffered some dividend cuts and suspensions in May.
Walt Disney (DIS) decided to forgo its first semi-annual dividend payment and one of my funds, Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (ETO), cut its distribution by 21%. Unfortunately, two more DivGro holdings announced suspensions of their dividends last week.
In this article, I will share my current thinking about these cuts and suspensions and the actions I'm likely to take.
Covid-19's Impact
I can't help but think the stock market is suffering from irrational exuberance.The impact of the Covid-19 pandemic on the Global and US Economy most likely will be long-term. Some job losses will be structural, meaning they won't come back. And the massive US stimulus package will increase the already high fiscal deficit. At the same time, the US GDP is expected to contract by 5.9% in 2020, which would increase the debt-to-GDP ratio above already record-high levels. In fact, US debt now is projected to exceed the size of the economy in 2020.
Many dividend-paying companies are trying to deal with the challenges posed by this pandemic. Some companies will suspend their dividends, some will cut their dividends, and some will freeze their dividends. Taking any of these actions will likely result in the stock taking a beating as dividend investors react to the news. In particular, income investors would need to replace their lost income or live with the reduced income. Some dividend growth [DG] investors may divest on the news.
Or not.
Perhaps dividend investors will see this pandemic and its impact for the black swan event it is, and decide to wait things out.
Of course, there are DG stocks that will just keep on giving and growing, and those are the kinds of stocks any DG investor would love to own!
At the end of this article, I provide a list of DG stocks that have already suspended or cut their dividends. As a consequence, these stocks will lose their dividend streaks (5 years or more of higher dividend payments) and be removed from Dividend Radar and the Dividend Champions lists.
The Impact on DivGro
ETO is a closed-end fund with a monthly distribution. My cost basis is $17.95 per unit and the initial Yield on Cost (YoC) is 12.03%. ETO closed at $20.23 per unit on Tuesday, 26 May. Including dividends, my ETO position has unrealized gains of 12.2%.
Given ETO's current yield of 8.56% and the fact that I have unrealized gains, closing or reducing my position doesn't make much sense to me. Where will I find a replacement for that yield?
ETO's dividend cut reduced DivGro's projected annual dividend income by $270.
DIS decided to forgo its first semi-annual dividend payment of 78¢ per share. Since I own 200 shares, that's at least $156 of dividend income I won't be receiving from DIS in 2020. Unless things improve dramatically, I don't think DIS will pay the second semi-annual dividend payment either.
My cost basis is $99.20 and DIS closed at $118.02 per share on Tuesday, 26 May. That represents an annualized total return (including dividends) of about 6%.
I'll wait and see what DIS does about the second semi-annual dividend. For now, I'm handling DIS as a stock with a suspended dividend and I reduced DivGro's PADI by $352.
Last week, two more DivGro positions were impacted, ROST, and TJX.
My average cost basis is $86.18, whereas ROST closed at $94.60 per share on Tuesday, 26 May. Including dividends, that represents unrealized gains of 11%, or about 6% on an annualized basis.
ROST is a low-yielding DG stock with a dividend streak of 26 years. My interest in ROST is (was) mainly for its growth prospects, which now seem to severely impacted. I'll see how things develop towards the end of 2020 and decide what to do with my position by year's end.
My average cost basis is $44.21, whereas TJX closed at $55.30 per share on Tuesday, 26 May. Including dividends, my TJX position has unrealized gains of 24%, or about 14% on an annualized basis.
Again, with unrealized gains of 24%, I'll see how things develop in 2020 and decide what to do by the end of the year.
My Plans, Summarized
Generally, I will sell all my shares in a position after a dividend cut (or suspension). If the dividend is frozen rather than cut, I may decide to hold onto my shares, depending on circumstances.
But I've decided not to take any immediate action. Instead, I'll wait to see how things develop. If the stock market continues to defy logic, I'll hold onto my positions through the end of 2020 and then determine if selling one or more positions would be sensible.
In case the market becomes more rational and takes a tumble, I'll close one or more positions and reinvest the returns in high-quality DG stocks that trade well below fair value.
Dividend Cuts and Suspension, so far...
- Feb 5: Black Stone Minerals (BSM) cut its distribution by 19%.
- Feb 5: Westwood Holdings Group (WHG) cut its dividend by 40%.
- Feb 7: Manhattan Bridge Capital (LOAN) cut its dividend by 8%.
- Mar 5: Vector Group (VGR) cut its dividend by 50%.
- Mar 10: Occidental Petroleum (OXY) cut its dividend by 86%.
- Mar 16: Macerich (MAC) cut its dividend by 33%.
- Mar 17: Ryman Hospitality Properties (RHP) suspended its dividend.
- Mar 17: Sotherly Hotels (SOHO) suspended its dividend.
- Mar 18: Marriott International (MAR) suspended its dividend.
- Mar 20: Boeing (BA) suspended its dividend.
- Mar 20: Bloomin' Brands (BLMN) suspended its dividend.
- Mar 20: Delta Air Lines (DAL) suspended its dividend.
- Mar 20: Calvin B. Taylor Bankshares (OTCQX:TYCB) cut its dividend by 16%.
- Mar 24: Steelcase (SCS) cut its dividend by 52%.
- Mar 24: SYNNEX (SNX) suspended its dividend.
- Mar 25: Alaska Airlines (ALK) suspended its dividend.
- Mar 25: Cracker Barrel Old Country Store (CBRL) postponed its upcoming dividend and suspended future dividends.
- Mar 25: Texas Roadhouse (TXRH) suspended its dividend.
- Mar 26: Lear (LEA) suspended its dividend.
- Mar 26: Oxford Industries (OXM) cut its dividend by 32%.
- Mar 26: Signet Jewelers (SIG) suspended its dividend.
- Mar 29: La-Z-Boy (LZB) eliminated its June quarterly dividend.
- Mar 30: Service Properties Trust (SVC) cut distribution by 98%.
- Apr 1: Gannett (GCI) suspended its dividend.
- Apr 3: Herman Miller (MLHR) postponed its upcoming dividend and suspended future dividends.
- Apr 8: Six Flags Entertainment (SIX) suspended its dividend.
- Apr 16: Green Plains Partners (GPP) cut its distribution by 75%.
- Apr 16: Goodyear Tire & Rubber (GT) suspended its dividend.
- Apr 17: Kohl's (KSS) suspended its dividend.
- Apr 20: Moelis & Company (MC) cut its dividend by 50%.
- Apr 20: Western Midstream Partners (WES) cut its dividend by 50%.
- Apr 22: Black Stone Minerals (BSM) cut its dividend by 73%.
- Apr 22: Retail Opportunity Investments (ROIC) suspended its dividend.
- Apr 23: Holly Energy Partners (HEP) cut its distribution by 48%.
- Apr 23: Invesco (IVZ) cut its dividend by 50%.
- Apr 23: 1st Source (SRCE) cut its dividend by 3%.
- Apr 23: USD Partners (USDP) cut its dividend by 70%.
- Apr 24: CenterPoint Energy (CNP) cut its dividend by 48%.
- Apr 24: Community West Bancshares (CWBC) cut its dividend by 18%
- Apr 28: American Assets Trust (AAT) cut its dividend by 33%.
- Apr 27: CNX Midstream Partners (CNXM) cut its dividend by 80%.
- Apr 29: Gaming and Leisure Properties (GLPI) cut its dividend by 14%.
- Apr 30: Great Western Bancorp (GWB) cut its dividend by 50%.
- Apr 28: Harley-Davidson (HOG) cut its dividend by 95%.
- Apr 30: Marcus (MCS) suspended its dividend.
- Apr 29: Methanex (MEOH) cut its dividend by 90%.
- Apr 29: Marine Products (MPX) cut its dividend by 33%.
- Apr 28: Rollins (ROL) cut its dividend by 33%.
- Apr 29: Winmark (WINA) cut its dividend by 80%.
- Apr 30: Woodward (WWD) cut its dividend by 71%.
- May 1: Weyerhaeuser (WY) suspended its dividend.
- May 3: Great Ajax (AJX) cut its dividend by 48%.
- May 5: Walt Disney (DIS) decided to forgo its H1 dividend.
- May 5: WestRock (WRK) cut its dividend by 57%.
- May 6: Wendy's (WEN) cut its dividend by 58%.
- May 6: Extended Stay America (STAY) cut its dividend by 96%.
- May 8: Brookfield Infrastructure Partners (BIP) cut its dividend by 10%.
- May 11: Preferred Apartment Communities, Inc. (NYSE:APTS) cut its dividend by 33%.
- May 11: Tanger Factory Outlet Centers, Inc. (NYSE:SKT) suspended its dividend.
- May 13: Penske Automotive Group, Inc. (NYSE:PAG) suspended its dividend.
- May 15: PBF Logistics LP (NYSE:PBFX) cut its dividend by 42%
- May 20: Haverty Furniture Companies, Inc. (HVT) cut its dividend by 26%.
- May 20: Haverty Furniture Companies, Inc. (HVT.A) cut its dividend by 26%.
- May 20: Ross Stores, Inc. (ROST) suspended its dividend.
- May 20: Ruth's Hospitality Group, Inc. (RUTH) suspended its dividend.
- May 21: TJX Companies Inc. (TJX) suspended its dividend.
Thank you for sharing
ReplyDeleteYou're welcome, Harshit Khanna!
DeleteGood analysis. Yeah, there are tough decisions ahead for dividend investors for the short term and long term.
ReplyDeleteThanks for commenting -- we'll need to see what happens next. I think the deteriorating US-China relationship may push the markets down again...
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