Dividends on Hold Around the World

Companies Suspend Dividends to Save Cash

Dividends for investors are on hold. As businesses struggle with falling revenue and an uncertain road ahead, 81 companies and investment trusts based in the US have suspended or canceled their dividends. More businesses have dropped their dividends in 2020 than in the entire past decade combined.

Last year, dividend payments were at a record high: $491 billion combined. This year, Bank of America (BAC) expects dividend payouts to shrink by 10% as companies in the energy and consumer discretionary sectors work to retain as much cash as possible.

This trend is evident outside the US as well. In China and Hong Kong, investment firms have also made the choice to suspend dividends in order to conserve profits.

Dividends on Pause at GM, Boeing, Carnival, and Delta

The travel industry has faced many challenges due to coronavirus, and as a result several travel companies have decided not to dole out dividends.

Delta Air Lines (DAL), Carnival Corp. (CCL), and Boeing (BA) have paused dividends to ride out this unprecedented drop in international and domestic air travel. General Motors (GM) and Ford (F) have also suspended dividends while car sales are down, dealerships are closed, and manufacturing is stalled. Macy’s (M) also put dividends on hold when the company was forced to temporarily shut down its stores.

What This Means for Retirement Plans

Stocks that offer dividends are primarily attractive to investors for their reliability. For insurance funds and endowments that might invest, reliable income from dividends is what makes it possible to match costs and make charitable donations. For retirees, dividends offer steady payments to help cover bills and improve quality of life.

As life expectancy goes up around the world, dividends become more and more important. In the US for example, data shows that for every 65-year-old couple, at least one person will likely live to be 92. That’s a lot of years for government and pension funds to account for. In countries like Japan, with even higher life expectancies, these funds need to last even longer.

When companies put dividends on hold, they are taking a risk. Under normal circumstances, a choice to suspend dividends can result in falling stocks, especially because dividends are so important to investors’ income. So far, however, companies like Boeing, Carnival, GM, and Delta have seen stocks rise after pausing dividends. That’s a signal that investors understand that these companies are facing unprecedented challenges and have hope that their situations will improve with time.

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