Coronavirus Spurred Firms to Hoard Cash. Now They Are Beginning to Dole It Out.
By Thomas Gryta
After scrambling to hoard cash within the spring, some giant U.S. firms that halted their dividend funds are reversing their choice, an indication that their leaders consider the worst of the disaster is behind them.
Earlier this yr, when a lot of the nation’s economic system shut down within the first waves of the coronavirus pandemic, firms withdrew cash from credit score strains, stopped repurchasing stock and halted dividend funds amid the uncertainty. The general public well being plight continues, however many companies — from factories to regulation companies — have discovered the right way to function through the pandemic. Retailers, fast-food eating places and automobile makers are doing higher, and there’s hope amongst executives that any new restrictions to battle the most recent U.S. surge in instances will not be as extreme.
“Multinationals are starting to exhale,” mentioned Mark Zandi, chief economist at Moody’s Analytics. “The resumption of company dividend funds is an encouraging signal that executives consider that the pandemic will quickly be behind us.”
Kohl’s Corp. was one of many 42 firms within the S&P 500 index that suspended its dividend to protect cash after the Covid-19 virus arrived. In September, finance chief Jill Timm mentioned the retailer would defend its cash reserves due to continued uncertainty. “As we see stabilization, we’ll transfer again into paying a dividend,” she mentioned at an investor convention.
Her tone modified final week when the division retailer chain reported third-quarter outcomes that confirmed its enterprise recovering after reopening areas. Income fell 14%, in contrast with a 23% drop within the earlier quarter. Kohl’s mentioned it might resume its dividend within the first half of 2021.
“We now have proven progressive enchancment and stability within the enterprise,” Ms. Timm mentioned on a convention name.
An organization’s choice to pay a dividend usually depends upon administration’s consolation with having sufficient cash move for different makes use of — post-payment — together with its capacity to entry different cash. It’s a dedication to make common payouts to shareholders and suspending it’s continuously a final resort in a disaster.
Of the 42 firms within the S&P 500 index that suspended their dividend earlier this yr, six have resumed paying their dividend and several other extra have given a timeline to do the identical, in line with S&P Dow Jones Indices.
Regardless of the financial shocks this yr, many giant firms have efficiently navigated the pandemic, and a few are benefiting by taking market share from smaller competitors. “It may not be a barometer of the energy of the broader economic system,” Mr. Zandi mentioned, referring to renewed dividend funds.
Oil producer Marathon Oil Corp. halted its dividend funds in May after oil costs dropped due to a decline in consumption of gasoline and jet gasoline as hundreds of thousands of individuals labored from dwelling and averted driving and flying. Final month, the corporate declared a dividend for cost in December.
“We consider we’ve efficiently repositioned our firm for achievement in a decrease, extra unstable commodity price surroundings,” Chief Government Officer Lee Tillman mentioned on the time.
Different firms resuming their dividends embrace Darden Eating places Inc., operator of Olive Backyard, LongHorn Steakhouse and different chains; cosmetics firm Estée Lauder Cos.; and timber large Weyerhaeuser Co.
Attire chain Hole Inc. halted its dividend in March whereas additionally skipping hire funds, issuing debt and drawing cash out of its credit score line. In late October, finance chief Katrina O’Connell mentioned the corporate can be “returning to paying a constant and aggressive dividend” in early 2021.
General Motors Co. CEO Mary Barra advised traders in early November that the corporate would intention to renew its dividend, suspended in April, round mid-2021 if the present restoration continues for the auto maker. In 2019, GM paid greater than $2.three billion in shareholder dividends.
Louis Navellier, chief funding officer of cash supervisor Navellier & Associates Inc., mentioned firms have been working to unlock cash move within the pandemic, and he sees extra firms resuming their dividends. He expects traders to focus extra on dividend-paying stocks as a result of rates of interest will stay low for a protracted interval. “I feel dividends will turn into extra necessary, and extra firms will do it,” he mentioned.
Some firms are doing extra than simply resuming dividends.
Retailer (TJX) Cos. mentioned final week that it might resume its dividend, however at a 13% larger fee than it final paid in March, citing its cash move and $10.6 billion in cash on its stability sheet. The corporate has reopened a lot of the TJ Maxx, Marshalls and HomeGoods shops it had closed within the spring.
“We’re very bullish on the longer-term outlook as a result of that feels considerably higher than it did firstly of [the third quarter] once we did not know the place all of this was heading,” CEO Ernie Herrman mentioned on a convention name.
One of many nation’s largest hospital chains, Common Well being Methods Inc., mentioned Thursday that it wasn’t fairly but able to resume paying a dividend, largely due to the current surge in instances throughout the nation. If the corporate can handle via one other troublesome Covid-19 interval, finance chief Steve Filton mentioned on a convention name, it might really feel extra comfy paying out cash to shareholders in dividends and share repurchases.
“We would wish to get via the following couple of months,” Mr. Filton mentioned, “after which perhaps someday in February, take stock of the place we’re.”
Write to Thomas Gryta at firstname.lastname@example.org
(END) Dow Jones Newswires
November 22, 2020 05:44 ET (10:44 GMT)
Copyright (c) 2020 Dow Jones & Firm, Inc.
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Dow Jones – Coronavirus Spurred Firms to Hoard Cash. Now They Are Beginning to Dole It Out.