Dividend Cuts: Pandemic Impact on Lanny’s Portfolio

Dividend cuts

The Pandemic is tearing down the walls us dividend investors built! We must protect this house that pumps out portfolio income.  The dividend cuts have been deep.  The pain is real.  However, could it be worse?

the dividend cuts

Dividend cuts have been almost commonplace, over the last 4-8 weeks.  There’s no debate, the global pandemic from the coronavirus has shaken up the investment world.  First the pandemic happened.  Secondly, you had the stay at home orders, causing businesses and spending to completely freeze.  Third, the oil wars occurred, causing the future contracts for May to drill into negative territory, as there is now limited/to no space left for oil to go.  In baseball, we call that three strikes.  You know what happens after that third strike?  You’re out, and quite a few of us were… caught looking.

Therefore, I will go through each and every dividend cut that my wife and I have endured.  Each dividend cut will be from the individual companies we own, taken from our Dividend Portfolio.
*Amounts that my dividend income was from 12/31/19 and to where they are today/May 10th.

Occidental Petroleum (OXY) – OXY cut their dividend, for obvious reasons, from $0.79 per share, per quarter, to $0.11.  This was the first cut, during the second week of March, that I endured.  My projected dividend income went from $156.32 to $23.41.  Total dividend cut impact = $132.91.

Delta Airlines (DAL) – Then there were the good old airlines. No question here what was about to occur.  When no one is flying, there is no revenue coming in.  Delta had to completely remove their dividend.  Total dividend cut impact, when including my wife’s position = $206.35.  The pain and wounds start to swell.

Bed, Bath & Beyond (BBBY) – Similarly, the other industry, retail, has been hit extremely hard. Echoing what Delta had to do, BBBY completely suspended their dividend.  My wife and I both held shares in this retail company.  Total dividend cut impact = $100.69.

Royal Dutch Shell (RDS) – Here comes the biggest sting of them all. The one oil company that I thought was better suited than others to maintain their dividend. Boy, was I wrong.  Shell cut their dividend for the first time since World War II, cutting the dividend from $0.94 per quarter to $0.32 per quarter.  Total dividend cut impact = $175.52

WestRock (WRK) – Just when you think it couldn’t get worse, the paper and cardboard company, WestRock (WRK), also announced a “reset” to their dividend.  I am pretty sure that is the first time I’ve heard that language, “reset”.  Still means the same to me.  WestRock cut their dividend from $0.465 per quarter to $0.20 per quarter.  Total dividend cut impact = $131.48.

Wendy’s (WEN) – Wendy’s stated they wanted to secure and strengthen their financial flexibility.  Reducing their dividend from $0.12 per quarter to $0.05 would do just that.  I wonder if the beef shortages had anything to do with this!  Total dividend cut impact = $15.00

The Gap (GPS) – Yep, they were already mulling the pulling Old Navy from The Gap brand, but that did not go through.  Similar to other retailers, this dividend went to 0, saving The Gap over $300 million per year in dividend cash out flow.  Total dividend cut impact = $33.78

Nordstrom (JWN) – Per the same reason above, Nordstrom couldn’t hold on either.  They should save close to $225 million, per year, which I cannot blame them for wanting to stay liquid.  This dividend went to 0.  Total dividend cut impact = $17.76

What’s the end result?  Well, folks, $813.49 in reduced/eliminated dividend income.  WOW.  What is one thing they all have in common?  Not one is from an industry built for the coronavirus.

See: Industries Built for the Coronavirus and Dividend Investors

That is the equivalent of investing almost $25,000 at a 3.50% yield.  There is no getting around that.  However, none of the companies above are facing bankruptcy

taking a step back to step forward

I am doing my best to take a step back. First, outside of retail, I actually have faith in many businesses above.  Oil & Gas, if prices come back into the $40+ range, they will perform much better, not great, but better.  In fact, the price is up almost 20% over the last few weeks.  Food, with Wendys, once people are also able to dine in, revenues and cash flow will be stronger.  I will admit, there’s never an empty line there with the location by our house.  The line is usually out to the street!

In my opinion, Delta was the best ran airline and people will fly again.  Now, I don’t think there will be the mad dash to the airport, but people will be in the air.  Therefore, when business is sound, cash flow has no choice to resume.  If there’s an airline that will come back strong, I believe it is Delta, based off of their Boeing mishap avoidance, as well as other sound business decisions they’ve made.

Retail, however, is too soon to tell who will fail or who will survive.  My wife is still big and anxious about retail shopping and the brands/companies she owns, she has fairly strong faith in.  We shall see, but luckily, they are such small positions (I’d much rather her own company, than the clothes!).  Going out to eat, shipping items and order/picking up pizza won’t stop, however, so I believe WestRock will paydown debt and be back to increasing dividends again.  Have to support a company whose products we use!

See: Lanny’s Coronavirus Dividend Stock Watch List

What am I doing in the interim?  I am sticking to the strategy and am getting back to basics.  There have been 0 sales, as I am still navigating through the business fundamentals on a normalized level.  In addition, I am using our Dividend Diplomat Stock Screener and have been heavily investing into undervalued Dividend Aristocrats.

See: Dividend Diplomat Stock Screener

See: Who & What are the Dividend Aristocrats?

Lastly, I will end with this.  Dividends from ETFs and Mutual Funds will more than likely have a short-term set back, as well – and it may be higher/lower than the impact I have experienced above.  One thing about this pandemic shares a resemblance with other crises.  The world and America find a way to bounce back.  If history repeats, as it always has, this could have been/and could be – a great time to invest and really build extreme wealth – both from dividends and the market value.

Thank you all, I know we are in this together and majority of us have experienced similar dividend cuts through this pandemic.  We will persevere and be stronger than ever!  This I know.  Stay safe, stay healthy, good luck and happy investing!

-Lanny

38 thoughts on “Dividend Cuts: Pandemic Impact on Lanny’s Portfolio

  1. Lanny,
    I feel your pain. I hold GPS and WRK as well. I also had cuts from KTB, DIS, and DNKN. I am treating each as a different situation. With GPS and KTB, I am holding and giving them time to return a little to form – after which they will probably be sold. WRK I am holding and plan to continue for a while. I already sold DNKN and DIS, both at profits. Those proceeds allow me to replace all of the lost dividends with companies that have a stronger financial position. DNKN I would buy back into, but DIS is a less simple answer. DIS should have been ready, and they simply were not.
    – Gremlin

    • Gremlin –

      Interesting you brought up the point that DIS should have been ready. I think that’s definitely a very cool perspective as I haven’t even thought about it, in that way. I am sure the acquisitions and just recently jumpstarting Disney+ doesn’t help.

      -Lanny

  2. You know it is best to pick 10 best long term dividend stock, and just fund them. I had a dividend cut with Ford and replaced it with Citibank. Once Ford rebounds and even if the dividend returns. I will sell this position.

    • Billy –

      I agree, getting back to basics and knowing those long-term companies that have stood the test of time is not a bad route to take. That’s the route I’ve been loading back into.

      -Lanny

    • Lucas –

      Thank you for sharing that. 10% less is not that shabby, though. As most funds/ETFs will probably be lower by at least that much, as well. Definitely life and investing lessons here to be learned.

      -Lanny

  3. My take away from the article is that you strayed from the gospel that you preach to the rest of us – buy dividend aristocrats. I guess that is what you mean when you say that you are going back to basics.

    • Ron –

      Bingo. My BIGGEST learning point through this is this – I was acquiring shares in companies that weren’t proven in the dividend growth streak and haven’t endured the crisis, before, at least not like this.

      Therefore – getting back to the basics of eating my soup of foundation stocks that have been here forever, that everyone uses in their everyday life.

      -Lanny

      • The problem is that consumer volume is nothing compared to what businesses move – and here the slowdown will prolong for some time. Like for us dividend investors its all about the long run.

    • This is my only holding ever to cut a dividend in my lifetime. I was absolutely stunned. No one has been able to produce a true, valid argument for this cut. I’m going to continue to hold as I believe there’s value here still and they will get back on track in the near future

  4. I think alot of these were avoidable. Alot of old retail’s getting crushed (The Gap? Been struggling for like 20 years), airlines will NEVER be stable dividend paying companies, and oil… the 2016 crash and move to renewables should have been a clue

    • Geoff –

      Thank you and yes – some could have been avoidable. This is true. Luckily, retail was very small in the overall portfolio of my wife and I.

      However, energy/oil – I had more faith in their management teams to diversify into other areas of energy.

      -Lanny

  5. wow brutal to see that many cuts in a short time period.

    The month has been pretty crazy and it may continue. q2 q3 wont look good.

    I had a cut from ipl and disney.

    Oil just got killed it will come back but I have always been a bigger fan of renewables and this just kicks me back in gear to focus there.

    Disney will rebound. parks will open cruises will be packed. How long depends on the vaccine right?

    I worry about my reit positions those will be effected huge.

    This cuts /reminders suck but at the same time are kinda nice when we are younger. Focus on solid companies and less on value. If you find both fantastic!

    I was planning on buying more jnj this week (not a value but will keep making money during covid) but 3m dipped nicely lately. A better value but earnings may hurt the next couple quarters…

    2 kings – The great debate….

    Keep your chin up! You guys are killing it and in due time will surpass those cuts and be earning even more cashflow.
    cheers Lanny!

  6. Yeah these cuts and suspension hurt it seems like 2 steps forward 3 steps back but my other companies I have are getting stronger. I will probably put a little in Dal from time to time and hopefully get close to even then sell it. I’d hate to get 10-15 years down the road and have a repeat with this time being way more money. I think I have around 1100 in cuts and suspensions.
    Hopefully we can get this going again and get back to solid dividend growth eventually

  7. Hi Lanny, hard stuff to chew on. But we will come back taking lower entry opportunities at a better yield. It’s all about the long run. Sure though, I also did set out to focus more and more on high quality, financially strong companies. It should pay off over time.

    • DGJ –

      It is hard, but chewing nonetheless.

      Yes – I have def. been able to acquire fundamentally sound companies, dividend aristocrats primarily, at better levels to offset this.

      The long-term mindset is key! Can’t wait to see where we are in 1 to 2 years from now.

      -Lanny

    • Desi –

      Looks like we shared a few names. I had a few larger positions with Shell and WestRock – those two really heard, as well as Oxy.

      Let’s see if these become KMI situations and the dividends come roaring back.

      -Lanny

    • Tawcan –

      I coudln’t agree more. Definitely a learning experience and there have been incredible takeaways from the pandemic. Keeping it simple with long-term companies/dividend aristocrats, in industries that will persevere.

      -Lanny

  8. Been quite rough, but I actually think it could have been much worse. I got hit by DAL, BA, APLE, TWO, CLDT, GM, WRK. Adds up to, or should I say subtracts down to $1,488.94 annual lost.

    But I think it will be smaller as many of them say it is “suspending” the dividend. They may bery well be back to paying them in 3 or 6 months. Time will tell.
    Stay safe,
    John

    • CW –

      It could have been worse. We will continue to see news. I am curious what forgoing and suspending dividend really means in their capital plans – no time horizon I am setting. I hope you are right in 3-6 months, my mindset is 12-18 months… agh!

      -Lanny

    • MIK –

      Thanks for stopping by. Yes – I do believe most are temporary. However, with retail, I am sure there will be tombstones and survivors – time to see which one’s will be there, standing strong in the end.

      -Lanny

  9. Hello Lanny,
    I’m a german so my english is not the best …. this is one of the first comments on a website outside from Germany ….. I am also a Dividend investor and wish you all the best … great blog … I come back …
    Thanks a lot for the inspiration
    Yours sincerelly
    Uwe

  10. It has been a rough few weeks for me as well, with RDS.B cutting its dividend, SKT suspending its dividend, and EQM cutting its distribution, for total cuts/suspensions to date of $50.41. It will be interesting to monitor how long the recovery from COVID takes across our portfolios.

    • Kody –

      No doubt. I know Q2 results will be very bad and Q3 should improve from Q2, but be worse than Q1. I think I am foreseeing a 12-18 month horizon for a little normalization. However, it may be years before dividends come back/return from these companies. The big ticket for me is Shell, eyes are on them now, big time.

      -Lanny

  11. Way to stay the course. I don’t believe I have experienced any dividend cuts yet, but I will have to go back and double check. It’s interesting you decided not to sell (at least not yet). I was considering Delta, but I think I’ll hold off for now. But I think I would do what you’re doing. If any of my companies cut its dividends, I would at least go back and evaluate whether I should sell.

  12. I own 200 shares of $oxy cause of selling cash covered puts at a $15 strike, but my cost is actually under $14 cause of all the premiums I have collected selling options.

    Now he is the thing. What do to next?

    The economy will recover, oil prices will stabilize and go up.

    Will OXY dilute their shares to pay their debts?

  13. First to go is profitability, dividend is next, then companies struggle on debt service with restructuring following, or even bancrupty on the horizon. Hertz is the latest example, maybe it will prove to be just the first in an upcoming string of defaulters. Who knows?

    I am actually planning to set up a family fund for investing in dividend aristocrats, bcs my daughter was asking. However, the list has got some changes, recently. Will there be more to come?
    I think, I should wait to see Q2, Q2, even Q4 results.

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