Companies using Covid-19 to cut dividends

Do not rely on the reported “current yield” statistic on nearly any stock out there. There will very likely be changes.

Companies that have regular dividend policies always find it difficult to reduce them or even scrap them entirely since there is an expectation of a return from their shareholder base. However, never letting a good crisis go to waste, you’re starting to see some action on this front.

If you think the banks are immune, HSBC Hong Kong scrapped their planned 4th quarter dividend (amusingly, there is a news article about shareholders planning a lawsuit – good luck suing yourselves!). You’re probably wondering about the Canadian banks, and they are too – calculating what their net exposures are. Securitized residential mortgages they can dump to the Bank of Canada, but on the commercial loan side of things, I’d expect their losses to rise significantly. The question is how much? For psychological reasons I do not think they will cut dividends, but Canadian banks are very opaque entities to analyze and you just never know when they will go on the brink. Entities like Deutsche Bank (DB) have always looked good on paper, but without having good granularity on their loan portfolio, who knows what the heck you’re investing in?

Food Service: On April 1st, A&W (TSX: AW.UN) suspended distributions. Their historical rate used to give out 15.9 cents per month, but clearly the take-out business is not nearly as strong when there is zero foot traffic. I wouldn’t be surprised if the Keg (TSX: KEG.UN) followed (they have yet to announce) but their units have already gotten hammered 50% from their ambient levels pre-Covid-19. MTY Group (TSX: MTY), owner/operator of a couple thousand restaurant franchises, announced they will scrap their next quarterly dividend.

Aviation, not surprisingly, is not doing well. Chrous Aviation (TSX: CHR) is suspending dividends. CAE, maker of very good flight training simulators, suspended dividends.

The list will continue. REITs, in particular, I think are prone to have distributions reduced as they need to build capital on their balance sheets to restore their debt to equity ratios to proper proportions. Since real estate is not the most liquid asset, it will take time for those fair market values to be reflected, but anybody relying on the price-to-book ratio should be cautioned that fair market value adjustments go down as well as up!