Dividend Rule of the Day: Measure Twice Before Investing

During the June 2020 quarter -- in a bid to stop the cash bleed and to shore up balance sheets among uncertain times -- a number of companies suspended their quarterly dividend payments. This injected fresh uncertainty into divided investors, given the unwritten rule that investors expect companies will continue to pay those dividends and in some cases increase them. But as we all saw, the pandemic brought a dynamic that few would have dreamed of last year. From the dividend investor's perspective, nothing crystalized this better than the data that dividends on net fell $42.5 billion in the second quarter from a year earlier, marking the worst decline since the financial crisis. Included in that total was $29 billion associated with 50 S&P 500 companies that either decreased or suspended their forward dividends. One of things we learned during the June-ending quarter earnings season is that, generally speaking, the cadence of activity tended to improve throughout the quarter. This commentary was also backed by the rebound in a number of economic indicators including the closely watched ISM Manufacturing and Services indexes. We also know from those companies ranging from Chipotle Mexican Grill to McDonald's that improvement continued in July. Against that improving backdrop, we've seen some companies reinstate their quarterly dividend while others, such as SuRo Capital , Procter & Gamble , Skyworks Solutions , The Hershey Company and J.M. Smucker among others have announced dividend increases. But from time to time there are situations that remind us we need to verify the information that is being reported. This pertains to dividends as well. Let me explain.... Each week I canvas dividend announcements for increases as well as cuts and even the continuation of existing quarterly per share dividend payments. The increase and decrease should be self-explanatory, but the continuation of existing payments is really for those stocks that offer, as I love to call it, enviable dividend yields. Regular readers of my dividend columns have probably recognized the low bar to catch my interest for that tends to be a dividend yield of about 3.5%. Recently, I saw several websites reporting that after Big Five Sporting Goods suspended its $0.05 per share quarterly dividend, it not only reinstated its dividend, but it increased it to $0.10 per share. As one might suspect that increased dividend was used to update the forward dividend yield associated with BGFV shares. We can see this in the following image: Here's the thing ... when we read the June quarter earnings press release from Big Five that included the announcement the company would reinstatement its dividend, we learn this: In light of the current strength of the Company's business, cash flow generation, and balance sheet, the Company's Board of Directors is reinstating its quarterly cash dividend at the previous rate of $0.05 per share of outstanding common stock. The Company has declared a cash dividend of $0.10 per share of outstanding common stock, which will be paid on September 15, 2020 to stockholders of record as of September 1, 2020. This $0.10 cash dividend reflects the Company's reinstated quarterly cash dividend of $0.05 per share for the third quarter, and also includes an additional $0.05 per share in recognition that the Company did not pay a dividend in the second fiscal quarter as it engaged in various efforts to conserve cash in response to the uncertainties of COVID-19. This catch up payment means Big Five is back on track to pay the $0.20 per share annual dividend shareholders expected to receive in 2020. At the current share price, that means Big Five shares offer a dividend yield more like 2.7%. While better than one might get by simply buying the S&P 500, it's well below that enviable dividend yield bar. The name of the game is verification, or as any good carpenter will tell you, measure twice before cutting.

Dividend Rule of the Day: Measure Twice Before Investing

News of Big Five Sporting Goods dividend move requires some careful reading.

Columnist Conversation

The SPX-Cash Weekly Chart

This Weekend on Real Money

Tactically Bullish

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.