What’s Going On Here?

Take a long look at your dividends, because they could be your last for a while: Goldman Sachs reckons coronavirus support for large companies has put cash payouts at risk.

What Does This Mean?

• In its analysis of major European companies’ dividends, Goldman concluded that since this year’s payouts are mostly paid using last year’s profits, they wouldn’t normally be at risk. But given the significant regulatory hurdles for companies that take government aid, as many as a fifth of the eurozone’s largest companies have paused their payouts.
• Between those companies and this year’s fast-falling profit predictions, there are questions over next year’s dividends too (might already be reflected in stock prices). Things might only start getting interesting again in 2022, when 2021’s profits are paid out as dividends.
• Goldman, for one, thinks there could be an even bigger jump in payouts than investors are currently predicting.

Why Should I Care?

For markets: Looking after the pennies.

• The companies that have canceled their dividends in Europe are primarily banks, travel and leisure brands, and industrial firms.
  • It’s not so different across the Atlantic: JPMorgan said it’d consider suspending its dividend for the first time ever if the forthcoming recession is as bad as analysts forecast.
• That might explain why some of Goldman’s sector recommendations are focused on industries that tend to be resilient in a downturn, including tech, telecoms, and consumer staples stocks.

The bigger picture: Dividends make the world go round.

Dividends matter to investors of all types:

• some rely on regular payouts to fund their living costs,
• others – like insurance companies – use them to help cover the costs of claims. Insurers invest the premiums they collect from policies, so they’re likely facing a double whammy: lost income from dividends and potentially big claims from coronavirus-hit customers.

Content source: Finimize. (2020) The Buck Stops Here. Available from: https://www.finimize.com/wp/news/the-buck-stops-here/ [Accessed at 7 Apr, 2020]