Companies are hesitant to bring back the dividend
To conserve cash at the start of COVID, nearly 190 U.S.-listed companies stopped paying dividends. Seventy-two of those companies still haven’t brought back their dividends, including:
- Disney — which is trying to reduce its debt load from its $71B Fox purchase.
- Boeing — which isn’t planning on reinstating its dividend until its cash positions improve to its pre-scandal days.
Not an easy decision: With a recession hovering over the economy, the decision to bring back dividends has become even more difficult for companies. Save for a rainy day, pay down debt or return capital to shareholders?
Once a company implements a dividend, investors typically don’t like it when companies take it away. An uncertain economy has also made many hesitant to fully bring back their dividend.
- In August, General Motors (NYSE:GM) reinstated a quarterly dividend of 9 cents a share — below the 19 cents estimate — and resumed share buybacks after pausing them for over two years.
- Liberty Energy (NYSE:LBRT) opted to go with stock buybacks, with its CFO seeing its shares as undervalued.
Positive signal: Dividends are often seen as a signal of strength in a company. Per Senior Portfolio Manager Diane Jaffee — “the dividend is a big signal of confidence, management, commitment and governance” (WSJ).
But not paying a dividend doesn’t necessarily indicate weakness in a company. Growth companies prefer reinvesting into growth, and tech giants opt for stock buybacks.
In the current market, conserving cash or paying down debt as interest rates rise could prove to be a better use of capital.