Dividends Are Down, but They Are Vastly Better Than Expected

When the coronavirus first surged in the United States, companies in many of the most heavily hit business sectors found themselves in a severe cash crunch. For the three months that ended on March 31, S&P 500 companies actually paid out more money in dividends than they earned: 130 percent of reported earnings, S&P data shows.

A deficit that big is not sustainable. It’s possible to spend more than you earn for a while, by drawing down savings and by borrowing money. But as anyone caught in that predicament knows, it will eventually catch up with you. No wonder corporate America began laying off workers, stopping stock buybacks — and freezing and trimming dividends.

A total of 42 companies in the S&P 500, heavily concentrated among hotels, airlines and retailers, suspended dividend payments from March through July, according to Mr. Silverblatt’s data. Among them are American Airlines, Ross Stores and Hilton Worldwide. The car companies, Ford and General Motors, confronting sharply declining sales and in urgent need of cash, also stopped paying dividends. And energy companies like Apache, Dominion Energy, Halliburton and Occidental Petroleum reduced their dividend payouts as the prices of oil and gas plummeted.

But the business outlook for many companies has since turned around, and their dividend actions reflect it. Darden Restaurants, Estée Lauder and Marathon Oil suspended their dividend payments earlier this year, only to reinstate them recently. These moves have helped to improve the overall picture for dividends.

Enormous increases in dividend payouts by a handful of companies have also bolstered the overall total. The two biggest increases on Mr. Silverblatt’s list come from two reliable giants. Microsoft increased its dividend by 9.8 percent in September, which amounts to a boost of $1.5 billion. Apple in April increased its dividend by $875 million. Both companies have been flush with cash and able to generate hefty profits and dividend payouts, even in a pandemic.

The next two big dividend increases came from members of the S&P Dividend Aristocrats index — a group of companies that have increased dividends annually for at least 25 consecutive years. AbbVie, the drug company, raised its dividends by $847 million in October. And Chevron, the oil company, did so by $756 million in January — before the economy and oil prices plunged. It has maintained quarterly dividends since then, despite declining oil prices, in deference to the presumed desires of the investors who have been counting on that income stream.

Whether Chevron — and a host of other companies — will manage to stave off dividend cuts early next year will depend on the state of the economy, which is likely to depend on the state of the pandemic. Big dividend-paying drug companies like Pfizer and Johnson & Johnson are working on coronavirus vaccines that could help turn the health crisis around.

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Tagged Dividends, expected, Vastly