Companies axe dividends in global push for cash

Companies around the world have started to cut their dividends, choosing to stop payments long regarded as sacrosanct amid growing pressure to conserve cash and fear of a backlash if they reward investors while seeking government help.

The cuts announced by US companies have reduced the total dividends expected from S&P 500 members this year by nearly $ 10 billion, or 1.9%, said Howard Silverblatt, senior index analyst for the S&P Dow Jones Indices.

“This is a moving target that will get worse,” he said. Index members were on track for almost a 10% increase in payments this year before the onset of the crisis, but instead of reaching new records, their dividends should now drop for the first time since 2009, when they fell 21%. hundred.

Delta Air Lines has become the sixth constituent of the S&P 500 to reduce its dividend this year, saving $ 1 billion a year. Delta told shareholders last December that it plans to distribute 70% of the $ 4 billion in free cash flow through share buybacks and dividends.

The same pattern is observed across the Atlantic, where more than £ 1.5 billion have been wiped out of payments expected from British companies alone – and £ 500 million just Monday after companies like ITV, IWG, Fuller’s and Kingfisher have all drawn their final dividends.

The regional dividend yield spread – the average dividend yield minus bond yields – is at its highest in any developed market. But far from signaling an opportunity to buy massively money-return stocks, investors say it means big dividend cuts are underway in all markets because the virus is forcing companies to reset their profit forecasts.

The dividend yields offered by companies in European countries such as the United Kingdom, Austria and Portugal are the highest in the world, suggesting to some that they are about to experience the sharpest declines, with an American prospective yield 2.6% lower than the world average. 3.2%.

Mislav Matejka, head of global equity strategy at JPMorgan, said: “We believe that these high dividend yields at face value are unlikely to be realized as the profit declines are likely to be severe, if not severe. extended. We are maintaining our prudent market outlook. “

H&M joined the race to cancel dividends on Monday as the world’s second largest clothing retailer closed more than two-thirds of its 5,000 stores worldwide “to further strengthen the already strong financial position of the company and thereby guarantee our freedom of action, “said Stefan. Persson, president and main shareholder of the group.

Helena Helmersson, CEO of H&M, added that “this is an extraordinary situation in which we are forced to make difficult decisions”.

Also on Monday, Electrolux suspended its dividend for 2019, warning that the coronavirus epidemic would have a significant impact on its finances, while Airbus announced that it would withdraw its 2019 dividend proposal, which had an aggregate cash surrender value of ‘around 1.4 billion euros, as part of measures to’ protect the future of the company ‘.

In the United States, the suspension of the Boeing dividend, announced on Friday, will save the hard-hit American aircraft manufacturer $ 4.4 billion, and intervenes when the Democrats, including Senator Elizabeth Warren, called for any bailout of the government to include restrictions on dividends and share buybacks.

Ford will save $ 2.3 billion and Occidental Petroleum will keep $ 2.4 billion that would otherwise have been returned to shareholders, said Silverblatt. Asked on February 28 by an analyst to see if the coronavirus would threaten its dividend, Vicki Hollub, director general of Occidental, answered: “We are in fact in a good scenario, I think, because we do not expect that this situation lasts. “

Dividend cuts have been rare among U.S. companies in recent years: the previous one by an S&P 500 member occurred in December 2017, when PG&E suspended its dividend due to its potential liability for California wildfires.

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