The financial devastation caused by the COVID-19 outbreak is forcing companies across sectors to slice dividends, says GlobalData, a leading data and analytics company.
Reeling from the effects of the outbreak, investors are bracing for impacts comparable to the 2008 crisis. Dividend slicing is an indication of the ominous financial impact.
As tracked by GlobalData’s news database, companies across diverse industries and geographies have already started announcing dividend cuts.
Aurojyoti Bose, Lead Analyst at GlobalData, comments: “As the world stares at the face of another possible recession, companies are facing mounting pressure to slash dividends. Several financial services (FS) companies have shelved their billion-dollar dividend plans. Major FS companies such as HSBC Holdings, ABN AMRO Group NV, Standard Chartered and ING Group NV slashed dividends*, citing an uncertain environment around COVID-19 as a prime reason for the cuts.
“Other sector giants such as Airbus SE, Boeing, Ford Motor Co and Delta Airlines have also withheld dividend payments to clamp down on spending to protect liquidity. Furthermore, despite facing increased demand for deliveries, Domino’s Pizza also suspended dividends.”
In the retail industry, Kohl’s and Marks & Spencer announced suspension of dividend payments as store closures are affecting profits. Interestingly, under the US$2 trillion bailout plan signed by the US Government, if companies opt to take advantage of the lending program, they cannot pay dividends for a year till loan repayment.
Bose adds: “In the FS sector, the European Central Bank (ECB) took stock of the situation and laid out an advisory to conserve capital and postpone dividend payments until October 2020.”
In contrast to their European counterparts, US banks such as Citigroup, Goldman Sachs Group and Morgan Stanley plan on defending their dividend payments despite facing financial stress. Although, the banks announced a suspension of their share buyback programs while citing strong capitalization as a reason to maintain their dividend plans.
In the oil and gas industry, the price crash forced energy giant Occidental Petroleum to announce cuts. Meanwhile, other companies such as Royal Dutch Shell and Exxon Mobil are going to great lengths to avoid slashing dividends. While Exxon slashed its capital to keep dividend payments afloat, Shell secured a US$12bn credit facility to protect its dividends. However, with the Saudi-Russia price war affecting demand, cash levels of major oil companies could be affected with increasing prospects of dividend cuts.
Bose concludes: “Sectors such as technology and healthcare are presumed to be safe from dividend slashing. Although, with the uncertainty around the situation, it will be difficult to identify safe payouts. Even companies in a position to pay dividends might not do so.”
* Starting 27th March 2020 until 1st April 2020