5 Stocks That Cut Dividends

Stocks That Cut Dividends: The COVID-19 pandemic has taken an economic toll globally. Many heavy-hitting companies are now fighting for their survival by cutting costs, preserving liquidity, and reducing their debt in an effort to come out of this alive.

For investors, dividends are important. In fact, the S&P 500 shows that over 40% of its returns have been due to dividends since 1926. For the 12 months leading up to March 2020, the S&P’s dividends were close to $500 billion.

Over the past ten years or so, investors have come to depend on ever-growing dividends and stock buyback allowances. Now, however, companies have reassessed balance sheets and looked for ways to strengthen their bottom lines amidst the pandemic – and it’s resulted in the ceasing of dividends and buybacks.

The following five companies have cut or entirely suspended dividends for the time being:

Carnival Cruise Lines Suspended Dividends

Cruise lines and airlines have been the first to hit the panic button over the novel coronavirus outbreak.

Carnival is looking at a combination of nearly $6 billion of debt and equity. In an effort to keep the cruise line afloat, they’ve suspended dividends temporarily.

They have also cancelled all cruises for the immediate future, and Carnival’s CEO, Arnold Donald, doesn’t foresee reopening cruising until consumers are ready for social gatherings again. As of press, Carnival hopes to provide senior convertible notes to the tune of $1.75 billion due in 2023.

Carnival also registered to offer public offerings – $1.25 billion worth of common stock. This figure could climb, but the worry is that existing shareholders would take a hit.

In addition to dividend suspension and cuts to capital and operating expenses, Donald expects Carnival to remain liquid enough to comply with debt covenants over the next year before they’ll need to request financing.

Tapestry Halts Dividends, Preserves Cash

Tapestry is a parent company of such big name retailers as Coach and Kate Spade. At the onset of the outbreak, Tapestry shuttered stores worldwide.

They expect to reopen up to 300 stores in the United States by May 22, 2020, but all stores will only offer curbside or call-ahead pickup service.

Due to this unprecedented closure, the parent company has suspended dividends from 4th Quarter, 2019 and halted buybacks in an effort to conserve cashflow.

Tapestry closed 2019 with an average of $1.2 billion of short-term investments and cash, and is currently tapping into about $700 million of its $900 million reserves. Tapestry’s shares have fallen 45% so far in 2020. The S&P 500 fell 25%.

Alaska Air CEO Gives Up Salary

Alaska Air has cut flights by nearly 70% as consumers have altered their personal lives and attitudes regarding travel.

In fact, the company said bookings dropped over 80% from pre-pandemic levels. In response, Alaska Air suspended dividends, withdrew a $400 million credit line, and secured a $425 million loan.

In addition to these cost-cutting measures, executives of the airline have taken pay cuts. Bradley Tilden, CEO of Alaska Air Group, has forsaken his salary to keep the company afloat.

Usual pay raises for other employees are currently suspended and some have received requests for voluntary leave.

Tilden commented that the airline has never been forced to take such drastic action, but that the action is crucial. Alaska Air’s overall stock figures are down 56% for 2020.

Nordstrom Taps $800M Line Of Credit

Retail has also been hit hard by COVID-19. People are no longer shopping – unless it’s online. In response to shutdowns, Nordstrom suspended dividends, stopped buybacks, and took out $800 million in a line of credit.

Nordstrom’s CEO, Erik Nordstrom, says these steps are crucial to maintain financial stability and flexibility. Nordstrom also said that while dividends are halted for now, the company does plan to resume payments in the long-term.

At the end of 2019, Nordstrom had $853 million cash on hand. Plans to cut expenses of $500 million are in the works for 2020 after further assessment of sales trends. Nordstrom’s original target savings were $200-250 million.

Freeport McMoRan Surprises By Suspending Dividend

The Phoenix-based mining company, Freeport, is one of the more surprising additions to our list. But due to uncertainties around the globe, the company announced suspension of its quarterly dividend payouts that were planned for May 1.

The Board is expected to declare resuming payments only after they’ve reviewed upcoming financial results and cash needs, as well as surveyed the global economy and other relevant factors.

Freeport has also begun aggressively reviewing operations plans at its sites across the globe in an effort to reduce costs and obtain max cash flow during this time.

Once operations plans are reviewed, their American plants may cease production temporarily if commodities pricing remains low. As of April, the company had indefinitely closed its New Mexico plant due to the spread of the virus amongst its miners at the facility.

Stocks That Have Cut Dividends: The Bottom Line

During previous economic crises, companies hit hard suspended dividends. This time around feels different. The stock market crash in March wasn’t due to the real estate sector or tech sector getting hit hard. The fallout from COVID-19 was broad and sweeping, taking down service-related stocks in particular.

Many investors have made the switch to cash or another defensive asset to weather the storm long-term. Leaving the market isn’t necessarily the right course of action, according to Charles Schwab. Aggressive, heavy portfolios have been shown to take just shy of two years before fully recovering from a financial crisis.

Disasters have come before and we’re likely to see more in the new future. But one thing is certain – the market always bounces back. Even if it takes a while, the stock market has proven resilient during times of crisis.

Don’t give up.

After all, the stock market has weather stormy times before whether World War II, Vietnam War, 1987 Crash, Tech Bubble implosion, real estate bust of ’08 and now most recently this virus pandemic scare.

It’s at times like these it’s best to “go up in quality”, find top tier blue chip stocks and offload the weak players, such as the stocks that have suspended dividends.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.