EC Covid-19 Dividend Cuts

The stock market somewhat recovered from the carnage it experienced in late February and March. After the S&P 500 closed at a record high of 3,386.15 on 19 February 2020, the index dropped as low as 2,191.86 (about 35%) before making its comeback. Today, the S&P 500 is trading above 3,000 again!

While my DivGro portfolio also recovered nicely, I've suffered some dividend cuts and suspensions in May.

Walt Disney (DIS) decided to forgo its first semi-annual dividend payment and one of my funds, Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (ETO), cut its distribution by 21%. Unfortunately, two more DivGro holdings announced suspensions of their dividends last week.

In this article, I will share my current thinking about these cuts and suspensions and the actions I'm likely to take.


COVID-19's Impact

I can't help but think the stock market is suffering from irrational exuberance.

The impact of the Covid-19 pandemic on the Global and US Economy most likely will be long-term. Some job losses will be structural, meaning they won't come back. And the massive US stimulus package will increase the already high fiscal deficit. At the same time, the US GDP is expected to contract by 5.9% in 2020, which would increase the debt-to-GDP ratio above already record-high levels. In fact, US debt now is projected to exceed the size of the economy in 2020.

Many dividend-paying companies are trying to deal with the challenges posed by this pandemic. Some companies will suspend their dividends, some will cut their dividends, and some will freeze their dividends. Taking any of these actions will likely result in the stock taking a beating as dividend investors react to the news. In particular, income investors would need to replace their lost income or live with the reduced income. Some dividend growth [DG] investors may divest on the news.

Or not.

Perhaps dividend investors will see this pandemic and its impact for the black swan event it is, and decide to wait things out.

Of course, there are DG stocks that will just keep on giving and growing, and those are the kinds of stocks any DG investor would love to own!

At the end of this article, I provide a list of DG stocks that have already suspended or cut their dividends. As a consequence, these stocks will lose their dividend streaks (5 years or more of higher dividend payments) and be removed from Dividend Radar and Dividend Champions lists.


The Impact on DivGro

ETO is a closed-end fund with a monthly distribution. My cost basis is $17.95 per unit and the initial Yield on Cost (YoC) is 12.03%. ETO closed at $20.23 per unit on Tuesday, 26 May. Including dividends, my ETO position has unrealized gains of 12.2%.

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Disclaimer: I'm not an investment professional or a licensed financial advisor. This article represents my personal views and decisions, which may not be appropriate for other investors. ...

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Comments

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Alpha Stockman 1 month ago Member's comment

This article is exactly right. I'm baffled why so many stocks are recovering so quickly when the impact of COVID-19 is so far from over. For example, how many people are going to be jumping on board cruise ships or airplanes any time soon?

FerdiS 1 month ago Author's comment

Agreed. Add to that many "shared experience industries" -- restaurants, theaters, shows, theme parks, concerts, festivals, conferences, etc. etc. Any "comeback" will be muted by reduced attendance (enforced or by choice).

Alpha Stockman 1 month ago Member's comment

Agreed. I'll be staying put and investing in tech companies like Zoom!

Dick Kaplan 1 month ago Member's comment

Good read, thanks.

FerdiS 1 month ago Author's comment

You're welcome! Thanks for commenting!

Edward Simon 1 month ago Member's comment

Thanks, Ferdi. The chart is a good way to check-up on which companies having been doing what with their dividends, albeit it is your subject list.

Cents For Sense 3 weeks ago Contributor's comment

Yes, he's one of my favorite authors here.