A Deep Dive on May Dividends

Companies Announce Payout Suspensions and Cuts

Dividends are a way that companies distribute a portion of their earnings to shareholders. During times of economic uncertainty, companies tend to decrease or suspend these payments. Last month was no exception.

During May, 18 companies in the S&P 500 announced dividend suspensions and five announced payout cuts. May’s numbers follow the trend seen in 2020 so far. This year, 40 companies have suspended dividends and 18 have cut them.

Interestingly, in 2009, only ten companies had dividend suspensions while 68 made dividend cuts. This is the opposite of the trend that is happening currently, since more companies are choosing to suspend dividends rather than cut them at the moment.

Walt Disney Co. (DIS) announced that it will suspend dividends for the first half of its fiscal year. American Airlines Group (AAL) and Molson Coors Beverage (TAP), have also suspended their payouts. MGM Resorts International (MGM) announced dividend cuts, and plans to pay out only a penny per share this year, down from an annual rate of 60 cents per share.

Bright Spots in the Dividend Landscape

Despite the fact that many companies have recently suspended or cut dividends, 11 S&P 500 companies actually announced increased dividends in May.

Those companies include Clorox (CLX), whose disinfectant products have been in high demand during the coronavirus crisis, and PepsiCo (PEP). Along with Chubb (CB), Cardinal Health (CAH), and Expeditors International of Washington (EXPD), these companies are esteemed members of what’s called the “S&P 500 Dividend Aristocrats,” which have managed to pay out higher dividends every year for at least 25 straight years.

Volatile Markets Impact Guidance and Dividends

During these uncertain times, companies are looking to save cash. Sometimes this comes in the form of layoffs or less investment. Other times companies decide to suspend or cut dividends. In order to maintain payouts, some firms even borrow money to finance distributions. Since some companies can’t predict their earnings at the moment, and have suspended forward guidance, many are trying to be cautious with their capital. When companies are forced to choose between layoffs and suspending dividend payments, sometimes dividends are the first to go.

Given the market’s volatility, making choices about how to invest in dividend stocks can be difficult. It can be helpful to start by analyzing a company’s payout history. Certain metrics such as “Payout Ratio” and “Cash Flow” are important to keep an eye on as they shed light on what percentage of a company’s earnings are paid out in the form of dividends and how much money a firm is making and spending. In June, investors will be watching to see if more companies suspend or cut their dividends.

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