Well, Maybe the Naysayers Were Right

A couple weeks ago, I thought the sell-off was overblown. Now I’m just happy my portfolio isn’t down more than 30%, and I’m wondering how much my dividend income is likely to decline this year.

The stocks I chased down? Wells Fargo, Clearway Energy — I should have waited. I could have picked up those shares even cheaper. 

We don’t know for sure yet how much the Covid-19 pandemic will disrupt the economy, at what cost, and for how long. But the handwriting is on the wall: many companies will have to reduce or eliminate their dividend. That’s especially true in the hospitality and travel sector. In addition to the economic hit they are taking, the bailout legislation recently passed by Congress prohibits companies that receive assistance from paying dividends in the near future.

According to a report in Barron’s, IHS Market predicts that 230 of the 1,800 largest corporations in the world will cut their dividends. (Barron’s cited IHS Markit as its source.)

Some sectors that may be immune from dividend cuts, at least if the pandemic slowdown doesn’t endure too long: health care and financials. I would guess consumer staples could do well too, though you wouldn’t know it from the performance of companies such as General Mills (which I own) in recent weeks. Technology stalwarts also may be able to maintain dividend payments.

And in the long run, the economic stimulus bill is one big charge adding to the nation’s federal debt, a problem the current administration seems determined to ignore.

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