Dividend Stocks are Back baby! Now that earning releases are coming into full swing and businesses had time to reach and adjust due to COVID-19, results are MUCH better than expected. In fact, some companies are making even more money now vs. during the pandemic.
As a dividend investor, I witnessed many dividend stocks cut their dividend. I am not talking just dividend cuts, but also dividend removals. We are now a surprising 8 months of battling COVID-19. There are signs that dividend stocks are back, as dividend increases have resumed.
dividend cuts
For those that remember my article, Pandemic Dividend Cuts STING DEEP! In fact, I lost over $814+ in forward dividend income due to dividend cuts. As an investor or someone who wants to use dividend income as their primary source of passive income, this hurt. Financial freedom took a few steps back during the early part of 2020.
Why did the cuts happen? Companies wanted to preserve capital, reduce outflow of cash and stay as liquid as possible. The first few months of COVID-19 brought much uncertainty and companies had to react accordingly.
Therefore, in an effort to survive the global pandemic, companies either reduced or completely cut their dividend. However, as we have started to see, survival did occur for many companies, as dividends are coming back for many!a
In that sense, I believe dividend stocks are BACK and the dividend income is ready to grow again! Dividend growth is extremely important on the journey to financial freedom and investors should feel more confident moving forward.
Dividend Increases after Dividend Cuts
Listed below are dividend stocks that have increased their dividend, subsequent to COVID-19 dividend cuts. I’ll go over a few headliner companies and show you what they did during the early stages of COVID-19 and what they have done to their dividend since then.
Wendys (WEN): First, they reduced or cut their dividend from $0.12 per quarter, down to $0.05 per quarter. This was a significant 58% whallop to their dividend! Income investors definitely felt the pinch, but those Wendy’s longs have never looked longer. Business is doing very well, as Wendy’s was now able to INCREASE their dividend from $0.05 per quarter to $0.07, a 40% jump. Don’t let the number or the percentage increase fool you, as a 40% increase is only $0.02 and the dividend is STILL lower by $0.05 or 42%. However, nice to see the dividend coming back!
Shell (RDS): Shell is trying to be the oil engine, “that could”. Now, they set a historic moment earlier in the year due to COVID-19, as the oil industry was shaking, essentially breaking. The price per barrel was practically worthless in the futures market, due to a supply and storage problem. This pushed Shell for the first time in almost a century, to cut their dividend down to $0.16 (i.e. $0.32 for the ADR), a massive 66% dividend cut!
Now, Shell beat earnings and forecast estimates. Due to other oil giants of Exxon Mobil (XOM) and Chevron (CVX) maintaining their dividend, I wonder if Shell investors were putting the pressure on. Therefore, Shell increased their dividend from $0.16 (i.e. $0.32) to $1.665 (i.e. $0.3333), a 4% dividend increase. Now that isn’t a significant increase, BUT it shows signs of confidence that their cash flow, balance sheet and process has improved!
Dividend reinstatements from abolishing the dividend
Foot Locker (FL): Footlocker completely stopped one quarter dividend payment. After announcing incredible results and growth, we are talking a 17% sales growth year-over-year, plus having insane liquidity over their debt levels, Footlocker (FL) resumed their dividend of $0.15 per share, per quarter.
Did consumers change their purchasing appetite to shoes/clothing vs. going out, traveling, etc..? That appears to be the case, and I did read a few publications on the subject.
Darden Restaurants (DRI): Another dividend stock that was marching in dividend increases, year after year, had to stop their dividend as well. 9 months later, Darden came back with a dividend. However, there is always an asterisk. Their dividend pre-COVID-19 was $0.88 per share, per quarter. Darden came back with a dividend, but only at $0.30 per share, per quarter. Therefore, they are still 3x as far away from that dividend, at the moment. Winter is coming and I wonder how business will perform when outdoor seating will be limited to the geography hit hard by winters. Time will tell on this company.
Marathon Oil (MRO): Marathon, like other energy players, completely turned off the dividend machine after Q1. In fact, they waited 2 quarters, but have resumed and reinstated their dividend policy. However, and here is the caveat, Marathon’s previous dividend was $0.05 per share, per quarter and the dividend that was reinstated stands at $0.03 per share, per quarter.
Now, these are only thee dividend stocks to resume their dividend payment. There are MANY more, but I wanted to highlight a few large one’s that many investors have in their portfolio. The resumption of the dividend is a great sign that dividend stocks are back! That’s a primary reason why investors hold the stock, the feeling of ease finally is starting to come back.
Dividend stocks to watch for resuming or increasing their dividend
Disney (DIS): Disney, the magical and wonderful place to be, halted their dividend payouts in 2020. In fact, we argue that the best move Disney has ever made was the launch of the Disney+ platform, it could not have been better timed with COVID-19. Why? Sports stopped. Movie theaters and blockbuster movies stopped. Theme parks were closed. The Disney+ platform and their television entertainment arm kept their company afloat during COVID-19.
Therefore, now that there have been a few quarters under Disney’s belt, Disney may stand a shot at resuming their dividend mid-2021. This is due to sports returning, theme parks slowly opening and movies being released for one-time fees on the Disney+ platform – you may see a dividend resumption soon.
WestRock (WRK): The packaging giant! Amidst the earlier months of COVID-19, WestRock cut their dividend down to $0.20 per quarter, from $0.465. That is a HUGE cut to their dividend. I do not know if they had to cut their dividend, since earnings during COVID-19 still covered the dividend.
However, I digress. As dividend investors, of course I hate it when my passive income stream is reduced! WestRock (WRK) made $0.57 for the quarter ending 3/31/20 and then made a roaring $0.69 for the quarter ending 6/30/20. Therefore – at such a low dividend payout ratio – one could imagine that the $0.20 dividend should start to increase in the upcoming quarter or by early 2021 as my expectation!
Occidental Petroleum (OXY): One could argue this was THE MOST hated stock over the last twelve months. OXY, first, had an awful acquisition of Anadarko, where they overpaid to acquire them, beating out Chevron (CVX). Not only that, but then – OXY cut their dividend not once, but TWO times during this global pandemic!
As of today, Occidental (OXY) pays $0.01 per share, per quarter. Oil “feels” like they are stabilizing or at least managing their capital better. Do to this, is OXY feeling the pressure to increase their dividend? Since Marathon Oil and Shell have come back with dividend increases – what does OXY want to do? Kinder Morgan (KMI) kept their dividend going, as well. The heat is on within the oil industry. My eyes are set on OXY with what they’ll do over the next 6 months through the end of March 2021.
dividend stocks are back conclusion
Given that we are almost to the end of 2020, there are signs of promise. Dividend stocks are starting to show more promise, then less promise. Given that Bert also puts out monthly expected dividend increase articles, we know expectations are low for right now, for dividend increases.
However, seeing dividend stocks go from no dividend, back to paying a dividend, is a GREAT feeling for investors! The investment news I am anxious about is with WestRock and Occidental Petroleum. I would love to see WestRock increase their dividend 50%, back to $0.30. This would still be lower than before, but would be a sign of confidence and keeps their payout ratio below 50%. OXY – I’d like to see them go from $0.01 to $0.05. That would give dividend investors something more meaningful to chew on.
How about you? Have you also gone through the roller-coaster of dividend cuts/removals and now with dividend increases/reinstatements? I know I am not the only one. Which dividend stock are you waiting for to come back? Any you think will never come back?
Thank you again, I look forward to the feedback! As always, good luck and happy investing!
-Lanny
It was nice to see the slight increase from RDS recently. The extent of the cut seemed a bit unnecessary from a shareholder standpoint, but I’d expect double-digit dividend increases annually over the next few years to gradually return to that initial payout.
Kody –
Thanks for the comment. I do hope that they do keep the dividend increases coming. I would even take modest 4-6% dividend increases, honestly. Slow and steady rise, as they continue to figure out their operations in a low-price-oil world.
-Lanny
Let’s see if GM and Brinkler (EAT) get back into the dividend game. If they do, I will consider purchasing them again.
CW –
There is stronger evidence that dividends are going to make a come back. The interesting part – I wonder how many used the lack of a dividend to further pay down debt or start new higher margin business ventues.
-Lanny
You know it. Lowering debt during a crisis is a wise move. Sets them up for accelerated future success once the economy can look at COVID in the rear view mirror.
Thank you Lanny for the article. I find that it is going to get harder for oil companies to keep up with the dividends. RDS, BP have cut their dividends substantially. 10K invested in BP ten years ago is worth $5773 (dividends reinvested). Oil is not a good investment anymore. Please tell me if I’m missing something.
I would love to see WRK get back on track and raise. Have felt they overcut from day one of the announcement. If they went slow and steady at say $0.025 per year it would be 10 years before we’d be back to the pre-cut figure and the annual raise would run 10% down to 5% over that period. Wouldn’t be too shabby of a decade IMO.