By Philip van Doorn, MarketWatch
The deadly coronavirus is taking a toll on financial markets around the world. Stock-price declines have been swift and relentless.
Now there is intense pressure for companies to shore up cash reserves, not only by reducing investment and suspending share buybacks, but by cutting dividend payouts.
Jefferies global equity strategist Sean Darby has listed 60 companies in the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.64% that he and his colleagues think are “susceptible to a dividend cut.”
Here’s the entire list, followed by explanations and more background from Darby:
|Company||Ticker||Dividend yield||Dividend coverage ratio||Net debt to equity|
|General Mills Inc.||/zigman2/quotes/206659526/composite GIS||3.62%||1.49||177.3%|
|Evergy Inc.||/zigman2/quotes/200697282/composite EVRG||3.42%||1.47||117.3%|
|Sempra Energy||/zigman2/quotes/206074517/composite SRE||3.48%||1.46||120.0%|
|Qualcomm Inc.||/zigman2/quotes/206679220/composite QCOM||3.59%||1.45||74.8%|
|PPL Corp.||/zigman2/quotes/207772352/composite PPL||6.43%||1.44||171.9%|
|American Electric Power Co. Inc.||/zigman2/quotes/209801263/composite AEP||3.34%||1.42||149.3%|
|Genuine Parts Co.||/zigman2/quotes/204247574/composite GPC||4.78%||1.40||114.9%|
|Consolidated Edison Inc.||/zigman2/quotes/207137172/composite ED||3.79%||1.38||117.1%|
|3M Co.||/zigman2/quotes/205029460/composite MMM||4.27%||1.38||186.1%|
|International Flavors & Fragrances Inc.||/zigman2/quotes/206698429/composite IFF||2.78%||1.38||64.3%|
|PepsiCo Inc.||/zigman2/quotes/208744353/composite PEP||3.04%||1.37||187.6%|
|Duke Energy Corp.||/zigman2/quotes/201480230/composite DUK||4.53%||1.36||130.8%|
|United Parcel Service Inc. Class B||/zigman2/quotes/201245396/composite UPS||4.13%||1.33||683.1%|
|Eversource Energy||/zigman2/quotes/203789081/composite ES||2.71%||1.33||117.6%|
|J.M. Smucker Co.||/zigman2/quotes/203835894/composite SJM||3.18%||1.32||72.9%|
|Coca-Cola Co.||/zigman2/quotes/209159848/composite KO||3.64%||1.30||156.3%|
|Becton, Dickinson and Co.||/zigman2/quotes/205527610/composite BDX||1.42%||1.30||89.3%|
|Kellogg Co.||/zigman2/quotes/209631250/composite K||3.83%||1.25||243.6%|
|Bristol-Myers Squibb Co.||/zigman2/quotes/202559280/composite BMY||3.31%||1.20||60.7%|
|Equity Residential||/zigman2/quotes/205190279/composite EQR||3.85%||1.15||84.7%|
|Las Vegas Sands Corp.||/zigman2/quotes/208792014/composite LVS||7.27%||1.14||132.3%|
|American Tower Corp.||/zigman2/quotes/200890312/composite AMT||1.72%||1.13||448.8%|
|Campbell Soup Co.||/zigman2/quotes/202107764/composite CPB||3.01%||1.12||759.3%|
|Federal Realty Investment Trust||/zigman2/quotes/202394259/composite FRT||5.60%||1.11||121.6%|
|FirstEnergy Corp.||/zigman2/quotes/201870541/composite FE||3.85%||1.10||295.2%|
|Microchip Technology Inc.||/zigman2/quotes/208326291/composite MCHP||2.13%||1.03||186.8%|
|Gap Inc.||/zigman2/quotes/206554267/composite GPS||13.07%||0.96||181.6%|
|Kinder Morgan Inc Class P||/zigman2/quotes/208455654/composite KMI||7.54%||0.96||93.4%|
|Hershey Co.||/zigman2/quotes/202765576/composite HSY||2.24%||0.96||228.5%|
|AT&T Inc.||/zigman2/quotes/203165245/composite T||6.88%||0.93||87.3%|
|AvalonBay Communities Inc.||/zigman2/quotes/201241431/composite AVB||4.18%||0.92||67.3%|
|Extra Space Storage Inc.||/zigman2/quotes/208054924/composite EXR||3.72%||0.92||179.9%|
|SL Green Realty Corp.||/zigman2/quotes/208985878/composite SLG||7.68%||0.91||92.9%|
|Welltower Inc.||/zigman2/quotes/200485564/composite WELL||7.38%||0.88||88.9%|
|Oneok Inc.||/zigman2/quotes/205201756/composite OKE||18.66%||0.88||204.4%|
|NiSource Inc||/zigman2/quotes/208795963/composite NI||3.22%||0.88||159.7%|
|Boston Properties Inc.||/zigman2/quotes/203540753/composite BXP||4.22%||0.86||144.5%|
|Essex Property Trust Inc.||/zigman2/quotes/207865118/composite ESS||3.68%||0.86||91.1%|
|AES Corp.||/zigman2/quotes/209256253/composite AES||4.19%||0.83||306.6%|
|Simon Property Group Inc.||/zigman2/quotes/209746667/composite SPG||14.84%||0.82||767.0%|
|Mid-America Apartment Communities Inc.||/zigman2/quotes/209821465/composite MAA||3.73%||0.79||70.9%|
|FedEx Corp.||/zigman2/quotes/203047719/composite FDX||2.09%||0.79||86.0%|
|Alexandria Real Estate Equities Inc.||/zigman2/quotes/206543290/composite ARE||2.85%||0.79||67.5%|
|Kimco Realty Corp.||/zigman2/quotes/202836571/composite KIM||11.09%||0.72||106.8%|
|Broadcom Inc.||/zigman2/quotes/200646538/composite AVGO||5.41%||0.64||111.1%|
|Amcor PLC||/zigman2/quotes/212673157/composite AMCR||5.64%||0.63||97.0%|
|Equinix Inc.||/zigman2/quotes/208927761/composite EQIX||1.65%||0.61||129.0%|
|Regency Centers Corp.||/zigman2/quotes/202056862/composite REG||5.96%||0.61||64.0%|
|Molson Coors Beverage Co. Class B||/zigman2/quotes/205165133/composite TAP||5.66%||0.57||63.5%|
|Digital Realty Trust Inc.||/zigman2/quotes/206785129/composite DLR||3.20%||0.55||100.7%|
|Realty Income Corp.||/zigman2/quotes/200487782/composite O||5.26%||0.51||81.1%|
|Newell Brands Inc||/zigman2/quotes/209507510/composite NWL||6.74%||0.47||121.1%|
|Williams Companies Inc.||/zigman2/quotes/205467183/composite WMB||11.58%||0.47||135.7%|
|UDR Inc.||/zigman2/quotes/200760603/composite UDR||3.82%||0.46||111.1%|
|Dominion Energy Inc||/zigman2/quotes/206853976/composite D||4.90%||0.46||112.3%|
|Crown Castle International Corp.||/zigman2/quotes/202885080/composite CCI||3.24%||0.39||226.3%|
|Iron Mountain Inc.||/zigman2/quotes/208929343/composite IRM||9.96%||0.38||711.8%|
|Ventas Inc.||/zigman2/quotes/206376229/composite VTR||11.01%||0.37||113.7%|
|Wynn Resorts Ltd.||/zigman2/quotes/208845907/composite WYNN||6.55%||0.31||533.9%|
|Healthpeak Properties Inc.||/zigman2/quotes/205497622/composite PEAK||6.08%||0.06||95.5%|
You can click on the tickers for more about each company.
You may have to scroll to see all the data.
The table is sorted by declining dividend coverage ratio, which was calculated by the Jefferies analysts by dividing the firm’s estimated earnings for the companies over the next 12 months by the expected dividend payouts based on the current dividend rates. A higher coverage ratio is better. However, a high ratio of net debt to equity is of concern. The net-debt-to-equity ratio was calculated by subtracting cash from debt and dividing by equity.
When asked in an email why he used earnings instead of free cash flow for the dividend coverage ratio, Darby replied: “Many companies will smooth dividend payments, so if we look at earnings measures, we can get an idea of how confident they are about future payments.”
One company that would have made Darby’s list was Macy’s /zigman2/quotes/201854387/composite M -2.50% . However, the retailer suspended its dividend March 20 after temporarily closing all of its stores March 17. Macy’s placed the “majority” of its employees on furlough this week.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law by President Trump on March 27. Companies that borrow from the federal government will be unable to pay dividends for a year after the loans have been repaid in full.
Of course, companies that don’t receive federal assistance will be able to continue paying dividends and even buying back shares. But in this new climate, management teams have to be careful.
“As companies become more aware that they are running their businesses for the bond holders (and credit markets) rather than for the equity investors, their focus will turn to managing cash rather than earnings,” Darby wrote in his report March 30.
He explained that debt issuers with sub-investment-grade ratings (below BBB) appeared not to have access to the Federal Reserve’s Primary Market Corporate Credit Facility (PMCCF) or its Secondary Market Corporate Credit Facility (SMCCF), which were established March 23 .
Darby went further, pointing out that the ratings firms might cut their ratings for BBB-rated bond issuers, making them likely to lose access to those programs.
So there are all sorts of reasons for companies to think ahead and shore up cash any way they can, by suspending share buybacks, cutting capital expenditures and cutting or suspending dividends.
In a report listing large-cap stocks with “safe dividends,” Goldman Sachs analyst Cole Hunter predicted dividends for the S&P 500 would decline by 25% in 2020.