Why Companies Are Trying to Decide Whether to Turn Dividends Back On
On Pause
As the pandemic’s economic impact took root in 2020, roughly 190 US-listed firms stopped paying out dividends as corporate finances were upended by COVID-19 and the related lockdowns. Now, some of those same companies are considering whether it’s time to resume paying dividends.
Of the companies that put dividends on pause in 2020, 72 or 38.5% have yet to reinstate the payouts. Executives are considering other alternatives as well, such as reducing debt and buying back shares, since they have excess cash on their balance sheets. are other options.
The Dividend Decision
Investors often use dividends to evaluate a company’s financial health. They’re generally paid out on an annual or quarterly basis. This means executives must feel confident that future cash flows can cover the total payout. This is why cutting or suspending a dividend is often seen as a worrying sign.
Dividends typically signal confidence and effective management. That said, there are reasons companies may choose not to resume them amid the current environment. For example, Gannett Co. (GCI) says it’s not planning to resume its dividend because it’s focused on lowering debt and growing digital subscriptions.
How Much, How Soon?
GM (GM) announced earlier this month that it will reinstate its quarterly dividend in September. Executives say it’s the right time to do so because the company’s balance sheet is so strong. Broadly speaking, this could translate to confidence in the push toward EVs and a strong sales pipeline.
Hersha Hospitality Trust (HT), a Philadelphia-based investor in hotels, predicts it will resume dividends in early 2023 at the latest. While the REIT paid out 28 cents per share before COVID-19, the plan is to start small with a single-digit-cent per share payout. Executives say it makes little sense to start out higher and immediately cut back, which could happen amid recession concerns. Dividends are important in terms of the benefits they provide shareholders, but the timing may prove tricky given current conditions.
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