Several companies cut or suspended their dividend in early 2020 amid the covid-19 impact on the economy. Should you keep your shares or not? This is the answer we will give you according to our dividend growth investing model. Some deserve to be kept even after a cut, but be prepare to be ruthless against most dividend cutters.
Dividend Cut & Suspension List
In this new section, we will track to the best of our knowledge all the dividend cuts and suspensions announced by companies we follow during the covid-19 crisis. This is not a complete list as we wanted to provide additional comments on most companies listed below. We will also tell you if we consider the company a “hold” or a “sell” depending on the reason why it cut/suspended its dividend.
| Company Name | Ticker | Cut/Suspension | Hold / Sell |
|---|---|---|---|
| Vermilion Energy | VET | 83% cut | SELL |
| Occidental Petroleum | OXY | 79% cut | SELL |
| Park Hotels & Resorts | PK | Suspension | HOLD |
| Crescent Point Energy | CPG | 75% cut | SELL |
| Marriott International | MAR | Suspension | HOLD |
| Ford | F | Suspension | SELL |
| Boeing | BA | Suspension | HOLD |
| Delta Air Lines | DAL | Suspension | HOLD |
| Darden Restaurants | DRI | Suspension | HOLD |
| TJX Companies | TJX | Suspension | HOLD |
| Helmerich & Payne | HP | 65% cut | SELL |
| LEAR | LEA | Suspension | HOLD |
| Anheuser-Busch InBev | BUD | 50% cut | SELL |
Additional thoughts for each dividend cutters
Vermilion Energy
VET posted a disastrous quarter and blame the virus for the dividend cut! The company says it cut the dividend in response to “weakness in commodity prices and reduced global economic prospects following the outbreak of the novel coronavirus.” Q4 fund flows from operations totaled $216M, in line with the previous quarter despite a significant inventory build in Australia, while full-year FFO hit a record $908M, up 8% Y/Y. Q4 production rose 1% Q/Q to 97,875 boe/day, and full-year output increased 15% to a record 100,357 boe/day, reflecting a full-year contribution from assets acquired in 2018 and organic growth from the Netherlands, Australia and the U.S.
Occidental Petroleum
According to management, the oil price could go down as low as $40 a barrel and OXY will maintain both its production and dividend. It seems that under $40 (we are way pass that level), the company is in deep trouble. At DSR, we are not fans of companies maintaining the status quo without offering growth perspectives. The other major problem is that the market doesn’t like the merger with Anadarko in a $55B deal. Investors are concerned by the level of debt, and financial analysts issued concerns around the expected synergies to be created. JP Morgan thinks it will destroy value rather than creating it.
Park Hotels & Resorts
PK is present in all the strong US markets (California, New York, Hawaii, Florida). Properties in flourishing states such as California, Florida, and Hawaii will continue to attract clients for their vacations or business trip once the economy reopen. Through its sheer size and strong balance sheet, PK is among a small elite number of investors that can bid on large real estate deals.
Crescent Point Energy
CEO can say pretty much whatever he wants, it’s too late to change our mind. With the latest oil bust in early March, we don’t see how CPG can recover losses for investors. It’s time to move on. The Company says it remains on track with its 2020 budget, with annual average production of 140,000 to 144,000 boe/d and capital expenditures of C$1.10B – C$1.20B. The Company’s net debt was ~C$2.8B down from ~C$4B last year quarter, subsequent to the quarter.
Marriott International
MAR doesn’t need a presentation. The company operates several strong brands across the world and can account for a loyalty membership program with over 125M users (!). The loyalty program represents about 50% of all rooms reserved and is a great source of continuous cash flow. MAR usually sets up long-term contracts (20 years) with its franchisees, which brings a lot of stability. With such an impressive portfolio, let’s just say it’s not hard to find more franchisees; the demand is strong.
Ford
F’s industry is cyclical, and experts fear the top of the hill is ahead. As Ford faces strong competition and the recession is obviously tehre, consumers may stick to their old F150. The second problem is the pension plan that is underfunded by $8.9 billion. Remember GM’s problems in this regard in 2008? The market correction is the last thing F needed. Unions are strong in this sector and this could also hurt in the current recession. At the same time, Ford is required to invest massively to electrify its vehicles. Not a great combo.
Boeing
One word: speculation. Boeing is a great business, but market crisis will leave terrible scars in this industry. It’s hard to make-up your mind on this one.
Darden Restaurants
Darden is one of the largest players in casual dining and has enjoyed the past decade of economic growth to boost its restaurant portfolio. The company increased the number of restaurants across its brands along with the acquisition of more chains along the way. Darden is an expert in bringing customers in and improving its operating margin. The introduction of technology combined with a straight-forward process has made its restaurants among the most profitable. Many successful strategies coming out of Olive Garden can be applied across its portfolio. There is still place for growth by acquisitions as this market is highly fragmented (DRI owns about 4% market share of the $185B industry). DRI has only suspended its dividend because their restaurants are closed. Can’t make money with closed doors, right?
TJX Companies
Because the classic retailers’ revenue growth has been greatly declining over the past 5 years, many conclude the brick & mortar retail model is nearly dead. Still, there are good buys to be had. TJX Companies looks like an interesting play in the off-price retail business. One of the biggest advantages of this business model is probably the merchandise flexibility. Goods sold constantly evolve and adapt according to client’s needs. Even better, because each store receives new stuff continuously, this invites customers to return to their favorite store more often to “hunt” for their deals. People just love getting deals!
Helmerich & Payne
HP is a great business in a bad industry. The company had great market shares, but drillers are just not going to do well with such low energy prices. There is not much you can do about it. Just move on.
LEAR
The auto parts industry is highly competitive and highly cyclical. The current slowdown in the automotive industry combined with the global economy pushed LEA far down and forced a dividend suspension. Lear is #2 in the seating market and claims the first spot when we look at luxury and performance seating. Lear has built close relationships with car manufacturers which makes switching costs higher. Lear has also integrated a strong innovation culture which enables LEA to offer top-of-the-line products to its customers.
Anheuser-Busch InBev
BUD previously cut its dividend in 2018 as the business couldn’t find any growth vectors. We rated the company as a sell back then. The second cut will not make us like the stock!
You can find our Canadian dividend cuts & suspensions list over at the Dividend Guy Blog
It sucks to hear dividend cuts ,but companies are trying to survive .I think i have 2 stocks that cut dividends so far,AGNC,Boeing.Hoping for no more cuts. But with portfolio filled stocks like VTR,MMM i am bracing for few more cuts.
There will be more cuts, but some will also come back.
I doubt MMM will cut its dividend.
Cheers,
Mike
Had Crescent Point but sold it before the bottom dropped out the barrel!
This situation is crazy! I can’t even picture a negative price for the oil barrel… wow!
Hi Mike
Thanks for this. Any thoughts on MDP’s suspension and the bloodbath in advertising at the moment?
Cheers
Tyler
It makes sense for MDP to suspend their dividend as they will see their revenue drop, right? MDP was rated as a “hold” at DSR before the crisis, but we stipulated it was a speculative play (as to know if their move in buying Time inc in 2018 would generate enough growth). The company is expected to report their next earnings on early May. We will get more information at that time.
Thanks for the insight. I assume not every company that sees a revenue drop will cut their dividend, but as you say MDP was firmly in “hold” but perhaps “speculative buy” before all of this kicked off. It will be interesting to see what the Dividend Aristocrat list looks like after this.
Another restaurant stock that suspended it’s dividend is Brinker International (EAT). What do you think of this? Is it also a hold?
-Mike
Hello Mike,
We rated EAT as a sell last year. Here’s what we wrote back in 2019:
Brinker is going through a difficult period where management has cut its menu offerings and shifted its marketing around high-quality ingredients and larger portions. Those actions were imperative since EAT is showing negative comparable sales for several quarters in a row. In other words; Brinker can’t find a way to grow its business besides opening new stores. This business model won’t survive long during a recession. If management can’t find a solution shortly, we will likely decrease its rating to “sell” (2).
Thanks for that!
I bought 50% of yr choices in Mike’s Portfolio(yr Portf.). Is it possible to know “right away” when yu buy or sell? instead to know it in yr monthly newsletter. Thanks, Mike
Hello Mike,
I post my trade in advance in the newsletter. Therefore, when you read about it on your Friday’s newsletter, it says when I’ll make the trade (likely at the end of the month). You then have 1-2 weeks to decide if you want to make the same trade in your portfolio :-)
Cheers,
Hehe, i love your answer about Boeing! So true, just speculation!
Recently they also cut Royal Dutch Shell’s dividend by 66%. I decided to keep it, because I still buy-in into their long-term strategy. Besides that I think it was prudent to finally make the call, because the company was having the dividend as a stone around the neck since the 2016 oil crisis.