Where’s the Beef (And the Dividend)?

Back in 1984, The Wendy’s Co. (NASDAQ: WEN), the parent company of Wendy’s restaurants, created an awesome television marketing campaign that became a cultural icon.

Three little old ladies pulled the bun off a hamburger, shifted their glasses to look closely at what was supposed to be a hamburger patty and asked, “Where’s the beef?” To this day, I still occasionally see bumper stickers asking that question.

In 2020, folks are asking the same thing about Wendy’s.

Right now, one in five Wendy’s restaurants – there are just over 6,500 of them – hasn’t got any beef. I’m not being cute. They literally do not have any hamburgers to sell.

As the COVID-19 crisis has swept across America, dozens of meat packing plants have closed or are running at reduced capacity, so there just isn’t as much beef to go around.

That has sent the chains’ net income plunging and, in the first quarter, income fell from $31.9 million in the year-ago quarter to just $14.4 million.

Nobody can find the beef. Not the restaurant chain or its investors.

To save cash, Wendy’s slashed its quarterly dividend from $0.12 per share to just $0.05. Some analysts believe there could be more trims to come.

Wendy’s isn’t the only company cutting its dividend because of the pandemic.

The same day that Wendy’s announced its cut, Walt Disney Co. (NYSE: DIS) suspended its semiannual $0.88 per share dividend. Everybody’s looking for the beef, but nobody’s looking for . . . the mouse?

Because of the stay-at-home-orders blanketing much of the country, Disney’s lucrative theme parks are shuttered. Disney cruises have been suspended, box office takes are zero as theaters are closed, and film releases have been delayed. That shaved $1.4 billion off Disney’s profits in the first quarter, forcing it to conserve cash by cutting its dividend.

Wendy’s and Disney aren’t alone.

Last month, more than two dozen companies either reduced or suspended their dividends.

That’s not because they wanted to, but because the COVID-related shutdowns mean the cash just isn’t flowing.

That’s been tough for income investors left scrambling to make up the (hopefully) temporarily missed dividends.

Despite that, there are still plenty of places that have the metaphorical “beef,” though. Not only do they have the beef, investors are so worried about where it’s coming from, they won’t pay full price for it.

That means smart investors can have their beef and eat it, too.

 By that, I mean you can buy solid assets that are still generating big cashflows . . . big enough cashflows to fund generous dividends. All at a discount.

Stay tuned and I’ll tell you how.

Here’s to Profits,

Ben Shepherd