Not Even Dividend Aristocrats and Kings Are Immune to Covid-19 Cuts

Over the last few weeks, we've seen a growing horde of companies pulling either their near-term or full-year 2020 guidance. This follows a similar parade of companies announcing store and other facility closures thanks to, you guessed it, the coronavirus and the response to contain it. More recently, we've seen a small, but growing, cohort of companies announcing the suspension of their dividends to shareholders. Granted, they are citing the uncertainty brought about by the virus and the impact on their businesses, but as we have discussed here several times before, dividends are viewed by investors, particularly U.S. investors, as sacrosanct. We've also seen the expected reaction in the share prices from this growing list of companies that include L Brands , Marriott International , Ford Motor , Delta Air Lines , Darden Restaurants , Macy's , Nordstrom and others. Over the weekend, President Donald Trump extended the national social distancing guidelines to April 30, reversing his earlier comments about getting life back to normal by Easter. The official goal is to keep the number of deaths below 100,000. But Monday morning on CNBC, Dr. Scott Gottlieb, the former Food and Drug Administration commissioner, shared the view that coronavirus infections and deaths will likely peak in late April, and social distancing guidelines can start to be removed in early June. Gottlieb sees the U.S. back to normal by July or August. Odds are this means lockdowns will be extended, which means companies will extend shutdowns, furloughs will grow, and more purchase orders could get canceled. Already Walt Disney announced Disneyland and Walt Disney World, which were expected to open next week, will remain closed until further notice. Discount retailer Ross Stores notified its vendors it would cancel all merchandise purchase orders through June 18, and other merchandise vendors have reported similar cancellations from Macy's, Nordstrom, TJX Companies and others. I'd point out that among that group is recently minted Dividend Aristocrat Ross Stores, which joined the group earlier this year. Ross has always been a well-run company, and with $1.4 billion in cash on its books exiting January, the company should have sufficient cash to meet its quarterly dividend payment to shareholders that totals just under $92 million. But the exact duration of what we are seeing now means uncertainty is key, and given the rash of other retailer dividend cuts and suspensions, odds are investors will take a wait and see approach with Ross shares. Meanwhile, there are a number of other dividend-paying companies among the Kings and Aristocrats, such as Verizon , AT&T , Hormel Foods , McCormick & Co. , Walmart , American States Water that should see little business disruption as people will still want to communicate, consume content, eat, bath and have water to drink. and eat. Kings and Aristocrats that investors will want to keep a close on in terms of their businesses are Caterpillar , Cintas , Sherwin Williams , Sysco Corp. , VF Corp. , and WW Grainger . And with oil hovering around $20 per barrel, time will tell the degree to which we see dividend cuts in the oil path. Among the Aristocrats and Kings, that means following the developments at Exxon Mobil and Chevron as well as other dividend-paying oil companies. We've already seen some cuts and suspensions, and that was when oil was $10 higher than it currently is. Should it remain at or near current levels on a sustained basis it likely means more cuts and suspensions are on the way. (DIS, TJX and VZ are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)

Not Even Dividend Aristocrats and Kings Are Immune to Covid-19 Cuts

Investors are wise to take a wait-and-see approach amid store closures, furloughs, social distancing and other measures in response to the outbreak.

Columnist Conversation

Let's Talk About Why Cash Is King

Fibocall Technical Trading Idea Texts

Wednesday Morning Fibocall for 10/21/2020

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.