COVID-19 Is Killing Dividends

Analysts from S&P Dow Jones Indices released numbers today that underscore the impact COVID-19 is having on income investors.

According to data the S&P Dow Jones analysts compiled, dividends paid by S&P 500 companies fell by $42.5 billion in the second quarter. That’s the biggest drop since first quarter of 2009, when the Great Recession was coming to an end, the S&P Dow Jones analysts said.

That $42.5 billion decline came after a $5.5 billion drop in the first quarter.

While the data from S&P Dow Jones Indices does break out companies that have temporarily suspended dividends and those that have stopped paying all together, it still paints a bleak picture.

Most of the companies cutting their payouts have placed the blame squarely on COVID-19 and the business closures it has necessitated. Many companies have said they simply didn’t have time to prepare for the virus, so they’ve had to conserve cash by any means necessary.

Overall, this isn’t terrible news.

In the second quarter of this year, S&P 500 companies paid $119 billion in dividends, compared to $127 billion in the first quarter. In the second quarter last year, they paid $118.7 billion.

That means second-quarter dividends are actually up compared to last year.

Overall, though, dividends are beginning to trend down as companies move to conserve cash.

This chart from S&P Global shows total annual dividend payments from the S&P 500 going back to 1995. This is the first year in more than two decades that dividends are expected to actually decline.

That’s not a particularly good sign.

I have to underscore that the decline is based on current expectations. I would also point out that Wall Street analysts have a history of being optimistic, mostly missing major events like the Great Recession until they hit.

Take that as you will, but it probably means that dividend payments are likely to fall from here.

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Yours in Health & Wealth,

Ben Shepherd