• Many companies stopped paying dividends due to the Corona crisis
• Some companies could soon start paying bonuses to shareholders again
• Decision depends on deleveraging, share buybacks and economic outlook, among other things
The Wall Street Journal (WSJ) reports that the S&P 500 companies collectively paid $118.36 billion in common dividends in the second quarter of this year, according to data provider S&P Global Market Intelligence. This represents an increase of 11.8 percent over the same period last year and an increase of 17.2 percent over the period in 2020. Meanwhile, spending on buybacks increased 11.7 percent to $205.9 billion.
According to S&P Global Market Intelligence, nearly 190 U.S.-listed companies stopped paying dividends in 2020 to save much-needed cash. Of these 190 companies, 39 are said to have reintroduced their dividends in the same year, 53 more followed in 2021 and 23 this year. However, 72 companies continued to suspend their dividends. Among them are the US aircraft manufacturer Boeing and the media group Walt Disney.
Boeing could soon be paying dividends to shareholders again
Boeing CEO David Calhoun said in April this year, according to the WSJ, that the US aircraftmaker would reconsider issuing shareholder bonuses once liquidity returns to pre-737 MAX scandal levels, which have impacted the company’s reputation and finances burdened, and reached the pandemic. Added to this were the burdens of the Ukraine war. Boeing is prioritizing investments in research programs over shareholder bonuses as its cash flow grows, the Boeing CEO said at the time. “I don’t think we’re talking about a 10-year timeframe here,” Calhoun said at Boeing’s shareholders’ meeting. “I think we’re talking about a lot less than that.”
Before the pandemic, Boeing was still paying a dividend of $2,055 per share.
Disney wants to further reduce debt first
Entertainment giant Disney will then consider reintroducing its dividend once it has further reduced its debt, which has risen after the pandemic and its billion-euro takeover of 21st Century Fox, Disney CFO Christine McCarthy told a conference, according to the Wall Street Journal in May. The company had net debt of $38.64 billion as of July 2, according to S&P. This represents a decrease of 2.8 percent compared to the previous year and a decrease of 14.5 percent compared to the period in 2020.
“Dividends are something that is very close to our hearts and we will resume them when the time comes,” said McCarthy.
Before the pandemic began, Disney had been paying its shareholders 88 cents twice a year.
General Motors will start paying dividends again in September
The US automaker General Motors, which suspended its dividend payments in April 2020 due to unclear prospects in the emerging corona pandemic, announced in August that it would reintroduce its quarterly dividend from September. In addition, the stopped share buyback program is to be resumed – the funds of 3.3 billion US dollars earmarked for this have been increased to 5 billion US dollars. “Given the strong balance sheet, we felt it was the right time to return cash to shareholders,” quoted Wall Street Journal CFO Paul Jacobson. From mid-September, a quarterly dividend of USD 0.09 per share is to flow – this means that the announced distribution is significantly lower than the quarterly dividend of 38 cents last paid before the corona pandemic.
Investors most want dividends and share buybacks
According to Diane Jaffee, senior portfolio manager at wealth manager TCW Group, investors most want companies to buy back shares and pay dividends because it gives both short- and long-term insights into their financial performance. “The dividend is a great signal of trust, management, commitment and governance,” the WSJ quoted Jaffee as saying. And James McRitchie, an individual investor in nearly 200 companies, agrees: “In general, paying out dividends is a sign of a company’s health.” In his opinion, dividends are more valuable than buybacks for individual investors because they can help supplement their income, while investors only benefit from buybacks if they sell their shares.
The cut or cancellation of the dividend, on the other hand, is often a sign that worries investors.
However, many factors come into play when considering whether and when companies will resume paying a dividend, such as deleveraging, stock buybacks, as well as the economic outlook, which is currently amid high inflation, interest rate hikes the US Federal Reserve and a shrinking US economy in the second quarter are rather uncertain. “The companies that haven’t come back are the ones that aren’t sure about their future,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, according to the Wall Street Journal.
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