Dividend Cuts Bringing Higher Yields

dividend cuts

Dozens of companies have found themselves making dividends cuts just in the past month.

Those cuts have actually made it possible to buy great companies at a discount, and lock in some attractive yields.

If income is your goal, you can also diversify your strategy and not worry about the dividend cuts in the first place.

Some economists said the coronavirus could drag U.S. gross domestic product (GDP) could fall by as much as 30%. Thankfully, it hasn’t been that bad, but the coronavirus has still played hell on the economy.

Government data shows that that GDP fell 4.8% in the first quarter. That brought America’s longest running economic expansion to a grinding halt.

It has also played hell with dividends.

In the month of April, more than 20 companies announced dividend cuts or suspensions, at least for the time being.

Athletic powerhouse Dick’s Sporting Goods (DKS), which had been paying a quarterly dividend of $0.3125 per share ($1.25 a year), has suspended its dividend.

One of the largest cruise lines, Carnival (CCL), which had been paying $0.50 a quarter ($2 annually), has suspended its dividend.

Goodyear Tire & Rubber (GT), oilfield services giant Schlumberger (SLB), Boeing (BA), Ford (F) and nearly two dozen others have all cut or suspended their payouts.

No one expects any of these companies to go bankrupt, at least not any time soon. But the business environment is so tough, they have to conserve cash . . . even if their investors are not happy about it.

For every company making dividend cuts, there are dozens more that are still paying their dividends – and even raising them.

Johnson & Johnson (JNJ) and Procter & Gamble (PG) have both announced roughly 6% increases. Costco Wholesale (COST) has boosted its payment 8%. Somewhat surprisingly, First Republic Bank (FRC) has boosted its payout 5% and IBM (IBM) has increased its payout roughly 1%.

So, things aren’t all bad. The trick is finding companies that can sustain – or even increase – their dividends. And they’re out there.

You can actually lock in some big yields right now because so many well-known companies have slashed their payouts. That makes every dividend suspect, even if the payer is sitting on a strong business and tons of cash. But that means you can pick up great companies, paying fat dividends, on the cheap.

Another way to boost your income is to add another strategy to your investment toolbox.

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Here’s to Profits,

Ben Shepherd

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