INSIGHTS

Financial Industry Insights from Advisors Asset Management

Email
×
Email
×

AAM Viewpoints – Dividend Health of the S&P 500


Summary: The S&P 500 has had 11 dividend discontinuations and four cuts since 2/19/2020, with another 19 predicted. According to Goldman Sachs, the S&P 500’s dividend payments for 2020 could be 25% lower than in 2019. To put that in perspective, they fell 17% between 2008 and 2009. The overall dividend health of the S&P 500 is at normal levels, however, there are a few industry groups that are struggling.

The global response to COVID-19 is placing significant pressure on companies throughout the economy forcing many companies to scramble to shore up their balance sheets by reducing investment, managing labor, suspending buybacks, and cutting dividends. In order to learn more, I looked at the dividend health score of every member of the S&P 500. The health score ranges from -100 to 100, and is based on a firm’s net income, payout ratio, debt/assets, EBITDA (earnings before interest, taxes, depreciation and amortization), EPS-DPS (earnings per share minus dividends per share), and FCF-DPS (free cash flow minus dividends per share).

The average dividend health score of the S&P 500 came in around positive 10. That didn’t tell me too much, so I zeroed in on the payout ratio. Of the 418 companies in the S&P 500 paying a dividend, 73 have a payout ratio greater than 1. This means these companies are paying out more to shareholders than they are earning. This money is coming from sources such as debt, which isn’t sustainable and is detrimental to a company’s financial health in the long term.

So far, as of 4/8/2020, we have seen 11 companies in the S&P 500 discontinue their dividend, and another four cut their dividend. They are listed in the table below. Based on data aggregated by Bloomberg, analysts expect another 19 companies to cut their dividend payment.

Name

Ticker

Industry Group

Indicated Dividend Yield

Dividend Percentage Cut

BOEING

BA

Capital Goods

0%

-100%

FORD MOTOR

F

Automobiles & Components

0%

-100%

DELTA AIR LINES INC

DAL

Transportation

0%

-100%

FREEPORT-MCMORAN INC

FCX

Materials

0%

-100%

VENTAS INC

VTR

Real Estate

0%

-100%

PACKAGING CORP OF AMERICA

PKG

Materials

0%

-100%

CARNIVAL CORP

CCL

Consumer Services

0%

-100%

HOWMET AEROSPACE INC

HWM

Capital Goods

0%

-100%

TAPESTRY INC

TPR

Consumer Durables & Apparel

0%

-100%

NORDSTROM INC

JWN

Retailing

0%

-100%

MACY'S INC

M

Retailing

0%

-100%

APACHE CORP

APA

Energy

1.43%

-90%

OCCIDENTAL PETROLEUM CORP

OXY

Energy

2.93%

-86%

SL GREEN REALTY CORP

SLG

Real Estate

7.29%

-67%

ROLLINS INC

ROL

Commercial & Professional Services

1.33%

-23%

 *From 2/19/20 - 4/8/20

Source: AAM | Bloomberg data

The table below shows the dividend health and payout ratios of each industry group in the S&P 500. Most are fine, but there are a few we should keep an eye on, such as real estate, energy, and consumer services (resorts, cruise lines, and restaurants fall in this group). Utilities get a pass since most of their negative score comes from how highly leveraged they are, which is normal. We mostly want to look out for companies with a dividend health score of -25 and below. None of the industry groups meet that criteria, yet Goldman Sachs predicts the S&P 500’s 2020 dividend will be 25% below what it paid out in 2019. To put that in perspective, we saw similar dividend forecasts after the financial crisis, but ultimately the S&P 500’s dividend only fell 17% between 2008 and 2009. As of 4/8/2020, the S&P 500 has a median dividend health score of 11, and a sustainable median dividend payout ratio of 0.409; due to this we feel the S&P 500 is in a good place to weather the storm.

Industry Group

Dividend Health

Dividend Payout Ratio

Average

Median

Average

Median

S&P 500

9.93

11.00

0.760

0.409

Real Estate

-16.10

-20.00

1.82

1.16

Energy

-12.11

-19.50

0.96

0.57

Consumer Services

-8.00

-9.50

0.68

0.47

Utilities

-0.14

-1.00

0.71

0.64

Media & Entertainment

0.78

7.00

0.29

0.28

Technology Hardware & Equipment

4.53

8.00

0.43

0.35

Materials

5.73

0.00

0.45

0.41

Automobiles & Components

6.00

4.00

10.51

0.33

Retailing

7.65

10.00

0.44

0.39

Commercial & Professional Services

8.75

15.00

0.46

0.42

Food Beverage & Tobacco

8.95

10.00

0.74

0.73

Semiconductors & Semiconductor Equipment

12.38

9.00

0.55

0.40

Banks

13.06

13.00

0.35

0.36

Transportation

13.07

11.50

0.36

0.25

Consumer Durables & Apparel

13.93

16.00

0.49

0.41

Telecommunication Services

14.67

-3.00

0.80

0.80

Food & Staples Retailing

15.40

22.00

0.38

0.41

Capital Goods

16.76

19.00

0.36

0.36

Diversified Financials

22.00

23.00

0.34

0.27

Pharmaceuticals Biotechnology & Life Sciences

22.93

23.00

0.49

0.52

Health Care Equipment & Services

23.29

25.50

0.68

0.33

Household & Personal Products

23.57

29.00

0.77

0.61

Software & Services

24.90

20.50

1.01

0.32

Insurance

33.77

35.00

0.30

0.32

*Dividend Health Score ranges from -100 to 100
**As of 4/8/2020
Source: AAM | Bloomberg data

 

CRN: 2020-0406-8183R

This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the Disclosures webpage for additional risk information at commentary-disclosures. For additional commentary or financial resources, please visit www.aamlive.com.

topics

×
2020 Investment Outlook
 

awarded Top 100 Wealth Management Blog

ABOUT THE AUTHOR
Author Image

Ask the Author

AAM wants to hear from you. Complete the form below to email the author with any questions or comments you may have. We understand that every firm handles interactive communications differently and will not post any feedback we receive without your consent.