Companies around the world have begun cutting their dividends, choosing to halt payments long seen as sacrosanct amid rising pressure to conserve cash and fear of a backlash if they reward investors while seeking government help.
The cuts announced by US companies have reduced the total dividends expected from members of the S&P 500 this year by almost US$10 billion ($17.5b), or 1.9 per cent, said Howard Silverblatt, senior index analyst for S&P Dow Jones Indices.
"It is a moving target, and it is going to get worse," he said. Members of the index had been on track for a near-10 per cent increase in payouts this year before the crisis hit, but instead of achieving new records their dividends are now likely to fall for the first time since 2009, when they dropped 21 per cent.
Delta Air Lines became the sixth S&P 500 constituent to cut its dividend this year, saving US$1b annually in the process. Delta had told shareholders last December that it expected to distribute 70 per cent of this year's US$4b of free cash flow in the form of share buybacks and dividends.
The same pattern is being seen across the Atlantic, where more than £1.5b ($3b) has been wiped off the expected payouts of British companies alone — and £500 million just on Monday after companies including ITV, IWG, Fuller's and Kingfisher all pulled their final dividends.
The regional dividend yield gap — the average dividend yield minus bond yield — is at its highest in every developed market. But far from signalling an opportunity to buy heavily into cash-yielding stocks, investors say that it means hefty cuts to dividends are in store across markets as the virus forces companies to reset their earnings expectations.
The dividend yields offered by companies in European countries such as the UK, Austria and Portugal are the highest in the world, suggesting to some that these are poised for the sharpest falls, with the US forward looking yield of 2.6 per cent below the global average of 3.2 per cent.
Mislav Matejka, head of global equity strategy at JPMorgan, said: "We believe that these at face value high dividend yields are unlikely to be realised, as earnings downgrades are likely to be severe, and possibly protracted. We maintain our cautious outlook on the market."
H&M joined the rush to cancel dividends on Monday, as the world's second-largest clothes retailer closed more than two-thirds of its 5,000 shops worldwide "to further strengthen the company's already strong financial position and thereby secure our freedom of action", said Stefan Persson, chairman and the group's largest shareholder.
Helena Helmersson, H&M chief executive, added that "this is an extraordinary situation in which we are forced to make difficult decisions".
Also on Monday, Electrolux suspended its dividend for 2019, warning the coronavirus outbreak would have a material impact on its finances, while Airbus said it would withdraw its 2019 dividend proposal, which had an overall cash value of about €1.4b ($2.6b), as part of measures to "protect the future of the company".
In the US, Boeing's dividend suspension, announced on Friday, will save the hard-hit US aircraft maker US$4.4b, and comes as Democrats including senator Elizabeth Warren have called for any government bailouts to include restrictions on dividends and stock buybacks.
Ford will save US$2.3b and Occidental Petroleum will retain US$2.4b that would otherwise have been handed to shareholders, Silverblatt said. Asked by an analyst on February 28 whether the coronavirus would threaten its dividend, Vicki Hollub, Occidental's chief executive, replied: "We're actually in a good scenario, I think, because we don't expect this situation to last."
Dividend cuts have been rare among US companies in recent years: the previous one from an S&P 500 member came in December 2017, when PG&E suspended its dividend as it tallied its potential liability for the California wildfires.
Written by: Andrew Edgecliffe-Johnson and Daniel Thomas
© Financial Times