eResearch | Corporations are starting to reduce dividends to cut costs as they are severely impacted by the Covid-19 virus after already struggling this past year due to deteriorating global economies, the recent trade wars between the U.S. and China, and the exit of the United Kingdoms from the European Union.
Economies and businesses are struggling due to the curtailment of social interactions resulting from the Covid-19 pandemic, which has forced the federal reserve to take emergency measures earlier this month by reducing short-term interest rates by 50 basis points, bringing the U.S. 10-year treasury yield to below 0.7% for the first time ever.
CHART 1: U.S. 10-Year Treasury Yield and S&P 500 Dividend Yield
The unexpected massive social isolation of consumers has significantly reduced demand for products and services in a very short period of time, which has forced corporations to make risk adjustments and prepare for uncertainties in operational forecasts.
Several public companies with high yielding dividends and a history of consecutive yearly payments are implementing dividend cuts and suspensions to strengthen balance sheets and reduce capital spending in an effort to reduce risks during these times of economic uncertainty.
Below are recent dividend cutting corporations in the U.S., Canada, and Europe:
Canadian-listed Companies
Chemtrade Logistics (TSX: CHE.UN)
Headquartered in Toronto, Canada, Chemtrade provides manufacturing and distribution services for industrial chemicals including sulphur & performance chemicals, water solutions & specialty chemicals, and electrochemical.- Chemtrade currently has a dividend yield of 17% and has a history of paying dividends consecutively for the past 18 years, but on March 11, 2020, Chemtrade announced a 50% reduction to its dividends to $0.05/share per month.
- The dividend reduction was a result of Chemtrade adjusting to current uncertainties across global economies, and Mark Davis, President and CEO of Chemtrade stated that he intends to strengthen their balance sheet by reducing leverage in preparation for further economical destabilization.
Crescent Point (TSX: CPG)
Headquartered in Calgary, Canada, Crescent Point is an oil and gas producer focused on operations within Saskatchewan where it is among one of the two largest producers.- Crescent Point has a dividend yield of 3.9% and has a history of consecutive payments for the past 17 years, but on March 16, 2020, Crescent Point announced a 92% cut to its dividend to $0.0025 per quarter.
- The dividend reduction was a result of Crescent Point revising its capital spending forecasts by 35% mainly due to a decline in commodity prices.
Shawcor Ltd. (TSX: SCL)
Headquartered in Toronto, Canada, Shawcor is one of the world’s largest pipe coating service providers for the oil and gas industry, with five business units including: Pipeline Performance, Composite Production Systems, Integrity Management, Oilfield Asset Management, and Connection Systems.- Shawcor currently has a dividend yield of 50% and has a history of consecutive payments for the past seven years, but on March 16, 2020, Shawcor announced a suspension on its quarterly dividend.
- The halt in dividend payments was a result of Shawcor implementing measures to strengthen its balance sheet and reduce costs to address the uncertainty of an expected economic downturn, with expected annual savings of $40 million.
Vermilion Energy Inc. (TSX: VET)
Headquartered in Alberta, Canada, Vermilion Energy is an international oil and gas producer with operations in North America, Europe, and Australia.- Vermillion Energy currently has a dividend yield of 46% and has a history of consecutive payments for the past 17 years, but on March 6, 2020, for the first time ever, Vermillion Energy announced a 50% cut to its dividend to $0.115/share per month.
- The dividend reduction was a result of Vermillion Energy reacting to the volatile energy markets with increased uncertainty in commodity prices as oil demand drops due to the Covid-19 virus.
US-listed Companies
Freeport-McMoRan (NYSE: FCX)
Headquartered in Phoenix, U.S., Freeport-McMoRan is a mining company focused on sulphur created through the merger of Freeport Minerals, Texas Freeport Suphur Company, and McMoRan Oil and Gas Company.- Freeport-McMoRan currently has a dividend yield of 25% and has a history of consecutive payments for the past 17 years, but on March 23, 2020, Freeport-McMoRan announced a suspension on its quarterly dividend payments.
- The dividend suspension was a result of Freeport-McMoRan implementing aggressive measures for cutting costs and capital spending in response to a decline in commodity prices and a slowdown in global economies.
European-listed Companies
Randstad N.V. (ENXTAM: RAND)
Headquartered in Diemen, Netherlands, Randstad is a multinational HR consulting firm focused on contracting senior level management professionals, with 4,473 branches and 29,000 employees across 39 countries.- Randstad currently has a dividend yield of 8% and a history of consecutive payments for the past 9 years, but on March 23, 2020, Randstad announced a 22% dividend cut to 1.62 euros per year.
- The dividend reduction was a result of Randstad taking precautionary measures of prioritizing capital preservation due to the lack of visibility on economic conditions.
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CHART 2: S&P/TSX Composite Index – Top 40 Dividends
