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!
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.
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!