Investing

Recession Turn: Many More Companies Now At-Risk of Halting Dividends and Buybacks to Fight the Coronavirus

Jon C. Ogg

Published: March 19, 2020 2:39 pm

Most investors who purchase dividend stocks expect those companies to pay those dividends through good times and bad times. When markets reach extreme panic, many of those dividends start to look very high based on the new lower share prices. In some cases, they look almost impossible to believe. It turns out that some companies reach a point where they have to start considering what might feel unthinkable during good times – should they lower, suspend, or eliminate their dividends? And for corporate stock buyback plans, many companies move to suspend those buybacks.

24/7 Wall St. has started to see many companies which have had historically safe dividends and easily defendable stock buybacks either preemptively or forced into making very hard decisions about dividends and buybacks. After looking at 1.2 million jobs are now at-risk of layoffs and furloughs from the major companies alone, some companies are going to make the difficult decision to suspend shareholders returns in an effort to keep their businesses intact and try to avoid making too many layoffs or furloughs.

Several companies have already thrown in the towel here on returning capital to shareholders. The so-called “Dividend Aristocrats” with 25 years or more of steady dividend hikes might even have to make some difficult decisions when it comes to dividends. Again, it boils down to saving jobs and operations inside a company or just continuing to send capital back to shareholders without interruption.

Earlier this week, 8 of the large banks in America announced that they were suspending share buybacks to brace for more fallout from the coronavirus. Some banks have already announced temporary branch closings. Some of those were as follows: JPMorgan Chase & Co. (NYSE: JPM); Citigroup, Inc. (NYSE: C); Wells Fargo & Co. (NYSE: WFC); Bank of New York Mellon (NYSE: BK); and State Street Corp. (NYSE: STT). Regions Financial Corporation (NYSE: RF) and PNC Financial Services Group, inc. (NYSE: PNC) were also among the banks that suspended share buybacks this week.

Capital One Financial Corporation (NYSE: COF) announced on Tuesday that it suspended its share buyback program on March 13, 2020 in response to the COVID-19 pandemic, but the company noted that it will not impact dividend payments to shareholders and that it has the ability to reinstate the buyback program as circumstances warrant.

Ford Motor Company (NYSE: F) screened as having a 13% dividend yield. That’s history. Ford announced on Thursday morning that it was suspending its dividend and withdrawing its 2020 guidance and was adding $15.4 billion of additional cash on its balance sheet by drawing down from two credit lines. If Ford just did the unthinkable, what are the odds that General Motors Company (NYSE: GM) is right behind?

Fresh headlines were out on Thursday that The Boeing Co. (NYSE: BA) is now considering a cut to its dividend and is also considering layoffs. The company’s woes to the 737 MAX are now history, and Boeing has gone from a healthy airline and defense maker to a company where every airline client it has is now in a fight to survive.

Darden Restaurants, Inc. (NYSE: DRI) announced with its earnings that it was suspending its 2020 guidance. The company also announced that it was suspending its quarterly cash dividend during extreme uncertainty while it was also fully drawing on its $750 million credit facility.

The TJX Companies, Inc. (NYSE: TJX) has announced store and distribution center closures, and to preserve capital it was suspending share buybacks, cutting capital spending and was evaluating its dividend program. The retailer was also drawing down on its $1 billion credit line.

Marriott International, Inc. (NYSE: MAR) is looking to mitigate the negative financial and operational impacts of COVID-19 with business contingency plans from closing food and beverage outlets, reducing staff and closing floors or even entire hotels. As of March 17, the company had drawn down $2.5 billion primarily to support commercial paper maturities of its total $4.5 billion facilities; and the company is looking to preserve cash by reducing or eliminating share repurchases, suspending the cash dividend after the March 31 payable date, reducing payroll and other costs and cutting back investment spending.

Starbucks Corporation (NASDAQ: SBUX) took the other side of the coin this week. The leader in coffee serving announced this week that 90% of its stores in China had reopened and with a strong 2019 performance and strong financial position that its board authorized a repurchase of up to 40 million shares of the company’s common stock.

Allegiant Travel Company (NASDAQ: ALGT) has cut expenses to preserve capital, and the company announced that all non-essential capital expenditures and discretionary spending has been cut along with an immediate hiring freeze and suspension of all stock buyback and dividend activities.

There are very few finite answers about exactly what to expect here, but the night and day scenarios from a few weeks ago is alarming. Standard & Poor’s has warned that the global recession is here, and calls from BofA Securities, JPMorgan, Goldman Sachs, Morgan Stanley and other firms are all echoing that a recession is here.

Other drastic readings are starting to be seen as well, and this feels like the proverbial tip of the iceberg for what might be coming ahead. According to LendingTree, nearly 4 in 10 American workers see reduction in wages and hours due to coronavirus pandemic and 63% of Americans are saying that their finances have already been impacted. The firm Capital Economics has warned that U.S. home sales could fall 35% in the second quarter versus the fourth quarter of 2019 as the economic weakness already seen is magnified by the coronavirus forcing people to stay home right as the typical home buying waves start each year.

Here are 9 dividends that should not be killed during the recession, with the caveat that if things get too bad and the cases of coronavirus gets out of control then all bets are off.