Investors who rely on dividends for a large part of their income should prepare for significant dividend cuts and suspensions in 2020.
In recent weeks, stock markets around the world have crashed as a direct result of the coronavirus pandemic.
In most corrections and market crashes, dividend investors are able to shrug off paper losses and focus on what really matters; their reliable stream of dividend payments.
But in the current crisis that may not be so easy.
The limitations on free movement of people and goods being put in place to slow the spread of the virus will have (and are already beginning to have) a significantly negative impact on the ability of most companies to generate the cash they need to pay dividends.
Already we’ve seen dividend suspensions from Marks & Spencer, Kingfisher (B&Q and Screwfix), Weatherspoons, ITV, Stagecoach and many more.
So how bad could it get? Of course we don’t know, but history may provide us with a few clues.
S&P 500 dividend cuts during previous crises
Thanks to professor Robert Shiller we have data on dividend payments of the largest 500 US companies going back more than a century.
This is very handy as it covers a period with multiple world wars, pandemics, oil crises, recessions and depressions.
So let’s have a look at what sort of damage a major economic disaster can do to the combined dividend of 500 very large companies (I’ll refer to these 500 companies as the S&P 500, even though that index didn’t exist 100 years ago).