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Some Companies Haven’t Paid a Dividend Since 2020. They Might Bring It Back as a Slowdown Looms
Boeing, Disney and others have yet to resume shareholder payouts
By
Mark Maurer
Aug. 29, 2022 5:30 am ET
Over two years after the pandemic ravaged corporate balance sheets, dozens of companies haven’t turned their dividends back on. Some of them are wondering whether now—
during an economic slowdown—is the right time to do so.
Nearly 190 U.S.-listed companies stopped paying dividends in 2020 to save much-needed cash, according to S&P Global Market Intelligence, a data provider. Thirty-nine went back to them that same year, 53 followed suit in 2021, and 23 have done so this year. However, 72 companies, or 38.5%, have yet to reinstate their dividend, including
Boeing Co. and Walt
Disney Co.
Faced with the decision of if and when to resume their dividend, executives are considering other spending priorities, such as reducing their debt or
buying back shares, and the uncertain economic outlook. The U.S. economy
contracted at a 0.6% annualized rate in the second quarter, and economists expect it to slow further as the Federal Reserve continues to raise interest rates to combat inflation.
“The companies that have not come back yet are the ones that are still unsure about their future,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, a unit of
S&P Global Inc.
Dividends oblige companies to pay shareholders on a quarterly or annual basis, meaning executives must have visibility into future cash flows and allocate sufficient capital to cover payments.
Cutting or canceling a dividend is often a sign that worries investors.
Boeing, the Arlington, Va.-based aircraft manufacturer, will consider issuing shareholder rewards again once liquidity is back to the levels seen before the
737 MAX scandal and the pandemic, Chief Executive David Calhoun said in April. Two plane crashes in 2018 and 2019 involving the 737 MAX jet dented the company’s reputation and finances. The company is prioritizing investment in research programs, instead of shareholder rewards, as its cash flow grows, Mr. Calhoun said at the time.
“I don’t think we’re talking about a 10-year time frame here,” Mr. Calhoun said at Boeing’s shareholder meeting. “I think we’re talking about something way short of that.” Cash and cash equivalents totaled $8.05 billion in 2021, up 3.9% from the prior year but down 15.1% from 2019 and 8.6% lower than in 2017, before the first MAX crash. Boeing paid a dividend of $2.055 per share before the pandemic. The company declined to comment beyond Mr. Calhoun’s remarks.
Walt Disney, the Burbank, Calif.-based entertainment giant, will contemplate reinstating its dividend once it further reduces its debt, which rose after the 2019
acquisition of entertainment assets from 21st Century Fox for $71.3 billion and the pandemic, Chief Financial Officer Christine McCarthy said at a May conference. “Dividends is something that’s top of our mind and we will resume them at the appropriate time,” Ms. McCarthy said.
The company, which paid shareholders 88 cents twice a year before the pandemic began, had $38.64 billion in net debt as of July 2, down 2.8% from a year earlier and 14.5% compared with the 2020 period, S&P said. Disney didn’t respond to a request for comment.
S&P 500 companies paid a combined $118.36 billion in common dividends during the quarter ended June 30, up 11.8% from the prior-year period and up 17.2% from the 2020 period, according to S&P Global Market Intelligence. Spending on buybacks increased by 11.7% to $205.9 billion.
General Motors Co. this month said it
plans to reinstate its quarterly dividend in September. “With the balance sheet as strong as it is, we felt it was the right time to be returning cash to shareholders,” CFO Paul Jacobson said. The Detroit-based auto maker, which is investing heavily to increase its electric vehicle business, is confident that it will generate sufficient cash. Cash and cash equivalents stood at $16.71 billion during the second quarter, down 27% from a year before.
Philadelphia-based
Hersha Hospitality Trust, which invests in hotels across the U.S., could resume its dividend later this year or in early 2023, likely at a single-digit-cent per share, CFO Ashish Parikh said. The REIT, which suspended its dividend in March 2020, plans to keep it low at first and gradually get back closer to the prepandemic level of 28 cents per share, he said. “If it’s a recession, we’re still going to generate taxable income, but you don’t want to start with a very high dividend right off the bat and have to cut it immediately,” Mr. Parikh said.
At
Liberty Energy Inc., buybacks are taking priority over dividends for now as the Denver-based oil-field services firm believes its shares are undervalued, according to CFO Michael Stock. The company’s board last month authorized up to $250 million in buybacks through July 2024. Shares closed at $15.63 on Friday, up over 47% from a year earlier.
Stronger earnings, however, are preparing the ground for a potential dividend reinstatement. “The general outlook at this present point in time is very strong for the industry and therefore would be a positive backdrop for the return of the dividend policy,” Mr. Stock said. Liberty Energy, which in April changed its name from Liberty Oilfield Services Inc., paid quarterly dividends of 5 cents per share before suspending them in April 2020.
Investors usually want companies to buy back shares and pay dividends as this indicates both short- and long-term visibility into their financial performance, said Diane Jaffee, a senior portfolio manager at TCW Group Inc., an asset manager. “The dividend is a big signal of confidence, management, commitment and governance,” Ms. Jaffee said.
Still, some companies aren’t interested in paying one. Gannett Co., a McLean, Va.-based media company, “for the foreseeable future” has no plans to resume its dividend as it focuses on lowering its debt and growing its digital and subscription business, a spokeswoman said. Net debt totaled $1.26 billion at the end of June, down $40 million compared with the prior-year period. “Paying a dividend is not the right use of capital while the transformation is in progress,” the spokeswoman said.
James McRitchie, an individual investor in close to 200 companies—including Boeing and Disney—said dividends are more valuable for individual investors than buybacks because they can help supplement their income. That contrasts with buybacks, which only benefit individual investors if they sell their shares, he said.
Mr. McRitchie said he hasn’t asked companies to reinstate their dividend. “Generally, it’s a sign of the health of the company to issue dividends,” he said.
Nina Trentmann contributed to this article.
