July 5, 2020 / 11:03 AM / a month ago

RPT-St Week Ahead-Clouds may be parting for dividend investors

    By Noel Randewich
    July 2 (Reuters) - U.S. companies are cutting their
dividends less than investors anticipated, providing a potential
boost to a stock market rally that has clashed with concerns
over a recent surge in coronavirus infections. 
    S&P 500 companies are likely to see an aggregate 2% decline
in 2020 dividend payments, compared with analyst projections
earlier this year of around 10%, according to S&P Dow Jones.
    That's good news for income-seeking investors at a time when
a series of rapid interest rate cuts by the Federal Reserve has
taken U.S. Treasury yields to near zero, sending market
participants further afield in search of steady payouts. 
    "We saw a devastating amount of dividend cuts, but the
second half of the year does look a bit better," S&P Dow Jones
analyst Howard Silverblatt said. 
    U.S. financial markets are closed on Friday for the July 4th
holiday. On Monday, data firm IHS Markit reports its surveys of
U.S. business activity, while Walgreens Boots Alliance Inc
 reports quarterly results on Thursday and U.S. initial
jobless claims are also due out that day. 
    S&P 500 companies slashed or suspended over $40 billion in
dividends in the second quarter, the deepest quarterly drop
since 2009, according to S&P Dow Jones. The cuts tapered off in
the latter part of the quarter as the U.S. economy began to
rebound, fueled by Fed stimulus and easing lockdowns across the
nation. 
    
    "The hope is that we have turned a corner, but that is going
to depend on the reopening of the economy," Silverblatt said. 
    The fall in Treasury yields to historic lows has raised the
allure of stock dividends, which are generally paid four times a
year.
    The gap between the S&P 500 dividend yield and the 10-year
Treasury yield in March hit a high not seen since at
least the 1970s, according to Datastream data, which does not go
back further. Currently, the S&P 500's dividend is nearly 2%,
compared with the benchmark 10-year U.S. Treasury's 0.67% yield.
   
   Jake Dollarhide, chief executive of Longbow Asset Management
in Tulsa, Oklahoma, has been buying shares of dividend-paying
companies that have also been outperforming in the epidemic,
including Johnson & Johnson, Campbell Soup,
General Mills, and retailers Costco Wholesale Corp
 and Walmart.
   Johnson & Johnson, which is among companies rushing to
develop a coronavirus vaccine, raised its dividend in April. In
June, Kroger and Target, which have been seeing
more business with people staying at home, upped their
dividends. 
    "I have plenty of older clients who only want dividend
stocks," Dollarhide said. "There are plenty of COVID-19 dividend
plays," he added.
    With California, Texas and many other states reporting
record increases in new cases of COVID-19, the pandemic's
trajectory remains the main source of uncertainty of whether
more companies will suspend or cut their dividends. 
    Over 40% of the United States has now reversed or placed
reopenings on hold, analysts at Goldman Sachs said in a recent
note. 
    Adding to uncertainty about future dividends, the Fed last
week capped big-bank dividend payments and barred share
repurchases until at least the fourth quarter after finding
lenders faced significant capital losses when tested against an
economic slump caused by the coronavirus pandemic.
    Wells Fargo shares have fallen about 1% since late
Monday after the bank warned it would reduce its dividend as a
result of the Fed's annual bank stress tests.
    Still, only three S&P 500 companies decreased or suspended
their dividend payments in June, while six companies upped their
dividends, according to S&P Dow Jones.
    
 Notable dividend increases in the
 second quarter:
 Company            Date     Dividend
                             Increase
 Kroger              25-Jun        +12%
 Target              11-Jun         +3%
 UnitedHealth         3-Jun        +16%
 Group                       
 Clorox              21-May         +5%
 Cardinal Health     11-May         +7%
 PepsiCo              5-May         +7%
 Apple               30-Apr         +6%
 Johnson & Johnson   14-Apr         +6%
 Procter & Gamble    14-Apr         +6%
 
    
 (Reporting by Noel Randewich; Editing by Ira Iosebashvili;
Editing by Leslie Adler)
  
 
 
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