Dividend Investing In A Volatile Market

U.S. companies are cutting or suspending dividends at a rate not seen since the global financial crisis.
We expect to see further dividend cuts or suspension announcements during the upcoming earnings season.
We believe that it's critical for investors to remain focused on the longer term performance of dividend stocks.
By Columbia Threadneedle Investment Team
U.S. companies are cutting or suspending dividends at a rate not seen since the global financial crisis. But investors should remain focused on the longer term performance.
Dividends have historically been an important component of equity total return. In the beginning of 2020, we believed their contribution would rise relative to equity price returns, which we expected to be lower.

But now, given the pressures of the pandemic-related economic slowdown, companies looking for ways to conserve cash flow are targeting dividend payments. The number of companies that have announced a cut and/or suspension of dividends is now at its highest level since the global financial crisis (GFC).

While the comparison to the GFC may make for a good headline, there are important distinctions to bear in mind. Most important is that, unlike the crisis of 2008, which was largely focused on one sector of the economy, the economic shutdown implemented to contain the virus is impacting almost all businesses. Many companies that were otherwise assumed to be strong have had to reassess their financial strategies. The impact is particularly severe for industries such as travel and leisure, but by virtue of the pervasiveness of the shutdown, it's not surprising to see a higher number of announced cuts and suspensions.

What to expect going forward
We expect to see further dividend cuts or suspension announcements during the upcoming earnings season. In particular, companies with higher leverage, or those that have been funding their dividends through means other than high free cash flow, may be... Read more