Dividend Massacre in This Crisis is Already Breaking Records, But it Just Started

The old saw that dividend stocks are good for bear markets is actually a high-risk gamble.

By Wolf Richter for WOLF STREET.

Dividend yield can be an irresistible siren song in the era of central-bank interest-rate and bond-yield repression: Harley Davidson’s dividend yield was over 7% until this morning – when it announced that it would slash its dividend by 95%, from 38 cents to a symbolic 2 cents to conserve cash. Going forward, the dividend yield will be close to 0%.

GM, whose dividend yield was an alluring 6.5%, announced yesterday that it would eliminate its dividend altogether to save about $2 billion in cash; and going forward, its dividend yield will be 0%. Ford had a dividend yield of over 11% before it eliminated its dividend.

Mortgage REITS have reduced or eliminated their rich dividends – and dividends is the primary reason to hold REITs. This started in late March, when AG Mortgage Investment Trust announced that it would stop paying dividends. Investco Mortgage Capital and TPG RE Finance Trust both said they would “delay” paying their previously announced dividends to preserve liquidity. In April, AGNC announced that it would reduce its dividend by 25%.

All of them had theoretical dividend yields well into the double-digits. Investco’s theoretical dividend yield – which reflects the past annual dividend payments as a percent of current share price – is over 60%.

Mall REITs are under enormous pressure, with most of their tenants shut down and many of them not paying rent. For example, Macerich announced mid-March that it would reduce its dividend from 75 cents a share to 50 cents, of which it would pay only 20% in cash and the remaining 80% in stock.

The list of big names that eliminated their dividend is getting longer by the day: Boeing, the airlines, the automakers, the cruise lines, cosmetics company Estee Lauder, hospital firm HCA Healthcare, hotel chains such as Hilton Worldwide and Marriott, casino operator Las Vegas Sands, retailers of all kinds including TJX, Kohl’s, and Macy’s….

This has been a persistent drumbeat over the past few weeks: Companies are struggling to preserve cash in order to survive this crisis, and dividends vanish with an announcement that the Board of Directors has decided to make them vanish.

Through Monday morning, 81 US companies and publicly traded investment funds, such as REITs and business development companies (BDCs), have announced that they would suspended or cancel their dividends, according to S&P Global Market Intelligence, cited by the Wall Street Journal.

It has only been a little over one month when this dance started, but those 81 suspensions or cancellations are already by far higher than the announcements of dividend suspensions and cancellations in any full calendar year going back to the beginning of the data in 2001. The prior record calendar year was 2009 with 63 announcements of dividends getting suspended or canceled.

Those 81 announcements so far are already higher than the combined total of the 10 years since 2010 (55).

And it doesn’t include those that will announce dividend cuts, including Oxford Square Capital [OXSQ], a publicly-traded BDC, which announced today that its dividend (or rather “distribution”) will mostly or totally vanish when it said “that no reliance should be placed on the prospect for any particular level of distribution for those months, or for any other periods.” Upon which its shares plunged 20%.

And 135 companies have announced in 2020 through Monday morning that they would reduce their dividends. This does not include companies like Harley Davidson that have chimed in since Monday morning. Those 135 announcements of dividend reductions so far this year is already the fourth highest number of any full calendar year in the data since 2001.

The number two and three calendar years for dividend reductions were 2015 (138) and 2008 (137). The year 2020 will take out those two in a couple of days, which will make 2020 the second highest year on record.

The number one calendar year on record for the highest number of dividend reductions was in 2009, with 316 such announcements. But 2020 is still young, and the crisis has just begun.

All dividend actions so far this year through Monday amount to a cut in payouts of about $22.8 billion, according to S&P Dow Jones Indices, cited by the Wall Street Journal.

Dividends look very attractive to income investors until the dividends disappear. That dreaded press release is all it takes. And income investors wonder where is there to go as the Fed systematically represses and destroys income from other sources such as investment grade bonds, government bonds, and savings products.

Well, for those investors, there are dividend stocks that still haven’t issued that infamous press release yet, such as energy giants Exxon and Chevron, which are caught up in the global collapse of the crude oil market, powered by the global collapse of demand for crude oil. Both have already announced large-scale cuts to their capital expenditure programs. Given the plunge in their shares, dividend yield has taken on juicy proportion: Exxon’s dividend yield is 7.8% and Chevron’s is 5.7%.

Will they, like the others that once had a juicy dividend yield, eliminate their dividends to preserve cash to get through this crisis?

That’s a thorny question, given the dividend massacre that has already happened so far this year. Chevron shares are down 26% year-to-date, despite the huge rally since March 23; Exxon shares are down 37% year-to-date. These share price declines show that investors have serious doubts about the dividends. And it shows how the old saw that dividend stocks are good for bear markets is actually a high-risk gamble.

CMBS get to eat it all: And amid overvalued vacant collateral, there is a new thingy: Tenants delaying rent payments and landlords asking for forbearance. Read… How the Unicorn Blowup & Oil Bust Bleed into Commercial Mortgage-Backed Securities

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  209 comments for “Dividend Massacre in This Crisis is Already Breaking Records, But it Just Started

  1. Tim says:

    Blood on the carpet for pension funds?

    • Trinacria says:

      Blood you say…..Harley effectively eliminates dividends and the share price is up as I write this by 16% !!!! We are living in the “upside down”…that, nor insanity even begin to describe what is going on and the policy responses are from another planet. Bail out nation, bail out world, where she stops nobody knows and how she ends nobody knows. I hope we don’t go “mad max”. Bankruptcies need to happen now to get rid of these zombies, pain in the short run but will cleanse the world to provide opportunity for the younger generations. This is so beyond criminal at this point.

      • What is happening in the market is a reflection of global money flows. The market rising alongside the strong dollar, shouldn’t be construed as a morality play. The US is hot money central. Fed set up dollar swaps with SNB, which prints money to buy US stocks. In turn the Swiss have been selling us gold, which is purchased privately. I would guess that is how they balance the books. They get a weaker currency and trade advantages, we get an even stronger dollar.

        • Trinacria says:

          We are destroying the lives of millions of people because this is an amoral situation and only getting worse. History is littered with examples of so many bad situations and how countries are destroyed by this type of behavior. We have learned and continue to learn nothing. Loud and clear, because of the amorality if not downright immorality we are indeed going to “mad max”. Gird your loins have never been more true. How sad to what we have reduced this once great country. It all comes to down to misbehavior (I am being kind) on a grand scale and this is then the manifestation. Just watched a 2014 episode of British crime drama – White Chapel – a coroner in the show predicted at that time that the apocalypse will come from a virus from eating bush meat. I don’t believe corona is the apocalypse, but I do believe it is a preview of coming attractions.

        • Implicit says:

          Old. young democrats, republicans. Can’t trust any of them!

          I understand what your saying, but bottom line it is going up because they want it to.

          Seriously, the ones you really have to watch out for with all that free gambling liquidity are those in charge telling the programmers what the the algos are supposed to do after they get the new free money from the fed.
          The market is driven where they decide because they can. Remember they were 80% of the trading during “normal” markets with average volume. It is probably higher now. It is an algo driven volume pushed mandate, They are able to move it where they want it to go for now, and they will find out when they can’t anymore and go short, It’s always about the money.

        • cb says:

          Ambrose Bierce said: “Fed set up dollar swaps with SNB, which prints money to buy US stocks. In turn the Swiss have been selling us gold, which is purchased privately.”
          _______________________________

          How do you know this? Any documentation?

        • The Fed isn’t doing anything for the economy other than elevating stock asset values, which is by extension the wealth effect and your pension fund. What is the upside of defending a quaint ideology, capitalism? Maybe you respect bankruptcy is the road to the WH? I concur that the FED has done everything wrong since 2009 and is doubling down on their mistakes. The proof will show up in money flows . No economic news or data, or tweets will reverse the process. When it begins to unravel you will wish it didn’t.

      • Phoenix_Ikki says:

        Upside down wouldn’t be enough to describe how insane this market is. HD is a good example, not to mention if you look at Macy, they were also up 9% today as well. Tesla still at over $700 s share and I can go on and on about how disconnect the market is to reality or even short term future. I guess having close to 30M unemployed from the number this week, it’s actually good for more stock gain. Perhaps the fault is with us, we try to look at market from a sane person pov with fundamentals in mind but in reality those things are about as rare as tooth fairy.

      • c smith says:

        This “upside down” behavior indicates investors believe (at least for now) that the current problem truly is one of liquidity rather than solvency, and the response by the Fed (printing $2.5 trillion) will be enough to bridge the problem.

      • The Colorado Kid says:

        I think the Robert Downey Jr. (in blackface) in the movie “Tropic Thunder” pretty well sums this up when he said, “never go full retard, man”. Well the Markets & America in general, finally just went full retard.
        This extends to me personally because in protest: I just went 10% short on full retardation. Fvck this shit man.

    • Tjay says:

      You know, I am a retired old fa*t with no earned income except (rmd) and social security. Just doing my taxes, result with (amt) I get to pay $6k to the feds, whats up with that? So much for pension!

      • S says:

        I feel bad for you because you are in the middle class. Yes, it was once something to aspire to but now it is something to dread from a tax standpoint.

        • sierra7 says:

          I am also a “….retired (very) old f$%^”…..live in CA Sierra foothills (I said CA because it’s supposed to crucify you in taxes) own home; modest pension plus SS…..since 1994 and low 6 figure savings. Can’t remember last time paid any CA personal or not getting back $$ from the FED taxes.
          Of course the almost zero interest being paid on my savings has kept me in the “negative” column.
          If you’re paying “$6k” fed taxes means you made some money…….
          You make some $$; expect to pay taxes.
          Of course we ALL pay consumer taxes.

          To other commenters above:
          I’ve been following the “markets” for many decades and this is the craziest I’ve ever seen them.

    • Thomas says:

      Ultimately the repairs to our “economy” will come from millions of individuals acting for their self interests within their areas of influence. But we should all be very angry that this “money” which for some ancestors was completely owned by those who earned it is partially owned by and completely controlled by those who “have our best interests” always in mind. That shared responsibility is as impossible as me sharing your assets and my actions “having your best interests” in mind. America blew it folks. And “conventional wisdom” will not put Humpty together again. Invest in lead and land – while you still can.

    • Thomas says:

      Senior gold miners are increasing their dividends,

  2. Mortadell says:

    Nice work as usual Wolf
    Could it be that the under 40 crowd just don’t believe that this is a black swan event?
    You are usually months, sometimes years ahead of everyone else!
    No one wants to face the truth right now.
    How will these companies look in six months?
    Let’s face it, dividend cuts are a biggie
    Either you have the cash or you don’t

    • neplusultra says:

      other way around. The under 40 crowd has very little capital. It’s obviously the older generations who are continuing to ransack the country and leave nothing for anyone else at an almost awe-inspiring pace. this has been going on for decades

      • Michael Fiorillo says:

        Yup, those 70 year-old Walmart greeters and cashiers at my local supermarket are real parasites and predators; someone ought to do something about them.

        • Cas127 says:

          MR,

          70+ yr olds have had a hell of a lot more more input, complicity, and value extraction in America’s multi decade decline than 35 yr olds – definitionally.

          Where are the (any) Social Security cuts? Along with Medicare and Defense, nothing else comes remotely close to being responsible for the vast majority of deficit deranged government outflow.

        • noname says:

          Walmart doesn’t even have greeters anymore, how about you lay off this boring old trope?

          Who cut greeter positions at Walmart?

          Probably not a 30-year old millennial!

          The irony…

        • timbers says:

          Cas127,

          Neither SS or Medicare have ever contributed to the deficit in any way.

          In fact they in fact sit on huge surpluses.

          This has been repeatedly explain here.

          Furthermore, since Medicare cost about 60% of all other forms of healthcare, expanding to everyone be a humougous cost saver that could drive the deficit down.

        • Cobalt Programmer says:

          In every crises, the narrative blames increase in minimum wages, poor people, immigrants and welfare. My be this time, Millennial vs Boomers. That way social security, healthcare and other welfare programs can be reduced or even cut. Also, minimum wage laws can be relaxed so that younger people can be paid less.

        • Cas127 says:

          Timbers,

          “Neither SS or Medicare have ever contributed to the deficit in any way.”

          Everyone is invited to Google cash outflow by government program to determine who is right.

        • Ravi says:

          yes, the oligarchs/plutocrats are now out…yet the majority of Americans continue to believe their spin…or should I say are willing to be gaslighted.

        • Zantetsu says:

          Timbers, Cas127 has been on this site long enough that surely he has read that comment from you numerous times already. He just doesn’t believe it I guess.

        • Thomas Roberts says:

          Cobalt Programmer,

          I remember back in high school, in the 2 years leading up to the 2008 recession, my fellow students, even before the recession, talking about what their futures and the job’s market. While, no position was universal, most high schoolers at that point in time 14 to 18 years old, held mainly the same ideas about the job market.

          They couldn’t quite put it into words, but, that the vast majority of the older generations middle aged and up would get the money they deserved, but, the older generations would give the younger generations money to the rich, because, this would help solidify their “older generations” money. So basically the teens thought the middle aged and older would gladly let the rich steal the young people’s money if the rich promised to not steal the middle aged and up’s money. The middle aged and up might think this subconsciously or overtly. This was an unspoken arrangement.

          They also thought and this was near universal that unions are supposed to be good, but, that the unions in America would, always heavily favor the older workers, paying them far more especially after benefits and forcing young people to pay into pensions they will never receive. So the unions were stealing from the young to pay the older and suppressing the young people’s wages in the process. And thus unions were very bad for the young people.

          They also thought that the infrastructure was falling apart, jobs were being shipped to China, and that the older generations gift to the next generations would be a pile of debt, among other such things. This was also near universal.

          They generally expected to make less than their parents.

          The teachers at my school drilled into everyone’s head that you needed to go to college and how how much better off you’ll be, how all the manufacturing jobs and the like will be automated or shipped away. Students were mixed about college.

          This was what 14 to 18 years olds “the guys in particular” thought back in 2006 to 2008, at my very typical mid sized Midwest city high school. They didn’t talk about this stuff all the time, but, when it came up, these were the usual opinions.

          After the recession started the mood, became, even more negative. After Obama ran and became the president, mostly the same things were thought “the Democrat teens were more cheerful at the time though, the Republican ones more negative”, but, the school became a-lot more partisan and much more Democrat vs Republican “it still didn’t come up a-lot though, except right around the elections and when Obama took office”, which to this day as far as I heard, has strongly intensified, with the teachers at that school turning full scale LGBT supporters including forcing the teens to attend cult like LGBT acceptance events as well as pushing the teens to be mainstream democrats. The reactions to this are very mixed. The teachers even sometimes do things like make the teens write a paper on “are teachers being paid enough”, the teachers at this school are doing better than most of the city.

          Since then my nearly 30 year old colleagues, who are doing worse than their parents did on average, but, some very well, many less so. But, on the conservative side, now strongly side with the republicans and for the rest, are more mixed. But, a substantial, but, hard to gauge amount and myself, think those above things are still true. But, most aren’t quite as negative about it.

          The overall thought, although, they cannot always put it in words among the people in their 20’s “and possibly somewhat higher” is that all the economic problems faced in America and the rest of the developed world, are the result of the middle aged and up letting the rich screw up the economy as long as they “the middle aged and up, not everyone, but most” get everything they feel entitled to, even if it’s at the expense of the younger generations. This again is subconscious or not. The problem the younger generation sees is that, they are currently are outnumbered and democracy cannot save them, until the demographics change, but America could be a-lot poorer by and then and it will be too late. It doesn’t help that the republicans in their 20’s, sometimes think they will be on the winning side of this arrangement, soon enough. Some do think though, that it will get better over time, because of technology or that the system cannot last and if the middle aged or higher, lose all their money, the situation changes. If America was run even mostly okay, there would be plenty of money for everyone, but, this unspoken arrangement is the problem. It’s not just, that the rich take too much, but, the far bigger problem is that they screw up the economy is the process.

      • Stuart says:

        Wrong. It is the Ruling Class and their employees in Washington DC that have ransacked the country. With economic collapse it is unlikely the charade will continue much longer. Rent strikes are just the beginning. Wait till the food supply dries up. Bread lines will become bread riots, especially when Fearless Leader tells people to shoot up Lysol. Has anyone received their $1200 death payments yet ?

      • Shiloh1 says:

        The same people have been running the country for the past 40 years and it has nothing to do with age. Endless wars, endless financial disasters, always enriching themselves.

        • Implicit says:

          You got that right. There are a lot of smart, empathetic good people of all ages. It is easy to categorize with broad strokes to hate. It is just being mentally lazy.

      • polecat says:

        It is much more a class issue, then it is generational, imnsho!

  3. timbers says:

    Meanwhile:

    DENVER (CBS4)– Top executives at Denver Health Medical Center received significant bonuses this month for their performance in 2019, ranging from $50,000 up to $230,000, one week after frontline hospital workers were asked to voluntarily take leave without pay or reduce their hours as the hospital dealt with the financial downturn resulting from the coronavirus pandemic.

    She announced a hiring freeze and asked employees to voluntarily take leave without pay, use personal time off or reduce their normal work week.

    “The goal is to reduce our total salary expense without the need to lay off employees or implement mandatory PTO/furloughs,” wrote Wittenstein.
    She said the hospital was also considering mandating workers to use their paid time off, mandatory leave without pay and other steps.
    “The goal is to avoid these extreme measures if at all possible,” she wrote.

    One week later, on April 10, Wittenstein and her executive staff saw their 2019 Management Incentive Plan bonuses deposited into their bank accounts. They had been notified in late March that this would occur.

    CBS4 obtained salary and bonus information for a dozen top executives at Denver Health via a Colorado Open Records Act Request which was filed April 10. It showed the following MIP bonuses were handed out:

    Robert Borland, Chief Marketing and PR Officer received a $53,406 bonus added to his $270,000 salary, equating to a 19.78% bonus.
    Scott Hoye, General Counsel, received a $78,174 bonus added to his $402,300 salary for a 19.43% bonus.
    Michelle Fournier-Johnson, Chief Human Resources Officer, received a $65,012 bonus on top of her salary of $347,800 for an 18.69% bonus.
    Connie Price, Chief Medical Officer, received a bonus of $95,792 added to her salary of $507,200 for an 18.88% bonus.
    Amy Weiss, Chief Experience Officer, received a bonus of $40,588 added to her salary of $221,800 for an 18.29% bonus.
    Wittenstein’s base salary for 2019 was $967,155, her bonus was $230,275 — which equates to 23.8% of her salary. She said her performance bonus is set by the Denver Health Authority board of directors and that the executive bonuses end up putting Denver Health administrators squarely in the middle of compensation for health and hospital executives.

    “We want to try to pay people fairly,” said Wittenstein. ”Those incentives are what keeps people at the midpoint of the compensation range,” she said, as compared to colleagues around the country.

    • Matt says:

      I can verify this is happening across San Diego as well. Hospitals are cutting nurse hours and asking them to take PTO instead of being scheduled. Come to the ER! We’re not busy!

    • Phoenix_Ikki says:

      With the kind of system we have in place, this kind of story sadly should be expected, this is the norm. I would be more surprise to hear stories of companies and exec giving back bonus and salary to mitigate layoff or pay reduction. I am sure there are couple of stories like there here and there but by and large it’s definitely exception to the rule.

      • Cas127 says:

        There is absolutely no reason why people can’t stay on top of the issue and work to get givebacks – the closer entities are to being funded through compelled taxes, the easier it should be.

        Unless those entities have political praetorian guards – in which case the first problem to deal with are the politicians.

      • John says:

        Wolf,
        Would have been shocked about a dividend cut. I now will worry. Time will tell when and how things will be. Cars, planes, bikes, are like accessories to me. I appreciate your facts. Some dividends just might stick around. Tobacco, oil, some reits with real nice assets. Narratives work on both sides, and I appreciate your facts. You writings have enlightened me and so many others. I believe my 61 year old sister came down with the virus yesterday, she is in a healthcare facility in N.J. We are all hoping she is a fighter, even with underlying health conditions. I speak and text with her, now I really don’t know what will happen,but I will share what I know in time. Thanks.

    • Ted Byrley says:

      It is time for the middle class to say stop taking away our interest, dividends, wages, and our lives!!!!! They believe they have evolved into a higher form of life. I think that is what the French Revolution was about.

    • Implicit says:

      Nice piece. Good work.
      They should put them on the front lines of medicine with the patients risk/reward and all.
      This is the reason why health care is messed up; that cartel needs to be cleaned out.

    • Shiloh1 says:

      “Chief Experience Officer” – a madam at a bordello?

    • Camren Youtube says:

      Hospital management – zero risk, zero metrics against which they are measured, zero billable procedures. And yet they make the big $. Two years ago I told the hospital system I worked for good bye. I haven’t regretted that decision since and only wish I had left sooner. The department manager (MBA, no MD) who’s salary exceeded most of the department faculty I hold in very low regard.

    • Sit23 says:

      What a sleazy cheap crook. From personal experience, that is what happens when you put the clerks in charge of the medical people. One high paid medical person to shut the others up. The rest clerical and support people that just suck up funds that could be spent on medical stuff.

    • Happy1 says:

      It should be noted by you and other supporters of government owned healthcare that Denver Health is the county hospital of Denver Colorado. These are government employees at a government owned hospital!

  4. IdahoPotato says:

    Meanwhile, the $500 billion large corporation bailout has no limitations on executive compensation and no stipulations regarding layoffs.

    • Cas127 says:

      Which program are you talking about?

      The program that has gotten the most press has huge stipulations as to layoffs.

      • Ed says:

        The $500B he’s talking about is through the Fed. They plan on lending to large corporations.

        No constraints on what they do for this benefit.

        • IdahoPotato says:

          Rep. Katie Porter:

          “There are very few conditions on where this money can go. There are a few general specifics. But they are very broad. They pertain primarily to not allowing stock buybacks or increases ― increases! ― in executive compensation during the term of this help. It doesn’t talk about how we should think about these priorities like how we weigh the relative needs of manufacturers versus retail versus hospitality versus technology.
          All of these sectors, all of that is left to the secretary of the treasury.

          And this is a secretary of the treasury who frankly was tangled up in the last financial crisis in his role with OneWest in a way that does not give the American public the confidence that it should have and the confidence that it needs.”

          My understanding is this bill will require the transactions to be posted to the Treasury Department website. I have a lot of questions about the level of detail we’re going to be getting and whether the public is going to be able to really understand what’s being done with their taxpayer money.”

  5. Just Some Random Guy says:

    Yeah on my my long term holds is paying me 9.2% dividend yield based on my purchase price. Like clockwork, the dividend came in every quarter. So far the company hasn’t announced a cut, but I’m assuming it will. Next dividend is due in 6 weeks or so. We shall see.

  6. Easy Al says:

    Companies such as XOM have records of several decades of continuously hiking annual dividend. The current situation put them between hard and rock places.

  7. Phoenix_Ikki says:

    It’s interesting reading about info here feels like I live in a different world than what’s going on in the market this last 2 weeks or what MSM is telling everyone. As always, good info Wolf and with outlook and action like this, you would think the general market would react at least a little bit more tepid, yet we’re now close to 30% recovered from March low..what a world we live in.

    Case in point, one company that has nothing but dogshit to show for (Harley Davidson) reported pretty bad numbers, things are looking worse than ever, release some not so detailed future plan and yup stock up 17% today. Makes you wonder if the rooster is coming home to roost anytime at all or if tried back in march and got slaughter and turned into chicken nuggets for the forever optimistic Mr market…

    • Joe says:

      If you haven’t seen Michael Moore’s Planet of the Humans, I highly recommend it. It is a real eye opener to the sham system we have created.

      • MM says:

        That movie is terrible and misleading. Do not watch.

        • Raymond Rogers says:

          Please tell me why it was so horrible?

          Many of us knew all along that these “green” energy pushes are/were just another way to transfer wealth from some rich people to other rich people.
          You dont get a free lunch concerning energy. Electricity is not magical. You consume it as it is produced.

        • MM says:

          Ugh, my comment had included a link that was removed!

          Search for “Tom Athanasiou planet of the humans” for a good review of this terrible film.

          In quick summary: many details are wrong and “fantastically [out]dated”.

      • Canadian says:

        Michael Moore is a moron.

    • Paulo says:

      The only thing dumber than buying Harley Davidson stock is buying a HD motorcycle these days.

      Gee, no dividends. Money for share buybacks. Money for exec bonuses. But no money for dividends, the carrot for buying to begin with.

      “No soup for you! Next!”

      • Cobalt Programmer says:

        Boomers are ageing rapidly. They cannot ride bikes. Younger people pay way less for a Japanese bike. Gen X, may be keeping the biker culture alive.

        • Dan Romig says:

          A lot of us old-timers ride.

        • Weary Patience says:

          @Japanese bikes. Less obnoxious exhaust, less expensive to maintain, less expensive to purchase, typically better mileage both per gallon and longevity. Why buy a Harley?

  8. HD says:

    “Dividends look very attractive to income investors until the dividends disappear.”

    Talk about dark humor.

    • Cas127 says:

      “Political promises look very attractive to voters, until the politicians disappear.”

      “Political promises look very attractive to voters, until their incomes disappear.”

    • Wolf Richter says:

      Yeah, we’re trying to keep a sense of humor here. But this can be tragic. Someone I know who is now in her mid-seventies inherited a lot of PG&E stock from her father some years ago, and who’d told her at the time to never sell it, but to just live off it. Her retirement plan was to live off the dividends. Her house was paid off, and together with SS and some savings, she was fine. Then PG&E crashed and cut the dividend to zero. The majority of her cash flow is now gone.

      • Tracy says:

        A friend of mine and myself once were talking about the Great Depression and dependable investment’s . ( even for the little person ) I asked him ” Sop what’s a good investment / Gold Silver ?” He said ” No you would think so ,but when the stock market started to crash everybody sold off as much as they could when they could and the market on metals’ also crashed . ” He then told me that housing ,utilities and food were a very slow return but the safest .”
        I suppose it is all a roulette game in the long run , and nothing is a sure thing

      • FinePrintGuy says:

        Would have been better off simply buying a dividend focused mutual fund. Tax basis steps up when you inherit. Would have been costless to do it…

      • MCH says:

        I think the lesson to take away from all of this is simple. Never assume the things that held true yesterday is going to hold true tomorrow.

        Money management is an important part of anyone’s life, and often completely ignored in our education system.

        Consider, ETF was thought to be a safe way to diversify from risks, but as has been demonstrated, some of these are in fact as risky as anything else. If one takes a look at for example the typical SPY, it’s over represented by just a few companies today. So, if those few stocks fall, everything takes a haircut.

        On the other hand pity the rest of the 500 in the SPY, a few of them could die, taking tens of thousands of jobs, and not matter one bit to the whole as long as the top few stays healthy.

  9. Keepcalmeverythingisfine says:

    So companies are cutting dividends in a severe economic downturn. I am shocked! Shocked I tell you. They are probably cutting capex and employees too. Shocking I tell you. Investors that thought dividend paying companies would be safer, and now they are losing money too! Oh the horror!

    I’ve reached my sarcasm limit for today, over it in fact.

    The sun also rises.

    • DawnsEarlyLight says:

      In this market, there is no limit for sarcasm. SARC away!

    • sunny129 says:

      Focus away from individual stocks towards div paying ETFs from various sectors, world wide. Doesn’t depend upon one or two but the sector as a whole, Of course sectors as a whole can get hit, too! But I worry very little about the individual stocks.

      There is always a bull mkt some where during the bear and vice Versa!
      ( Been in the mkt since ’82!)

  10. 2banana says:

    Great line.

    With 0% (or even negative) interest rates – where does an “investor” go for yield?

    Companies that used to pay a nice dividend.

    Now it needs to be:

    Companies that pay a nice dividend, have low debts, are still making money, can easily cover the dividends with earnings/free cash flow and will be able to weather the “shutdown.”

    “Dividend yield can be an irresistible siren song in the era of central-bank interest-rate and bond-yield repression:”

  11. timbers says:

    This. So true, Trinacria. If the Fed had even the slightest clue…it would step aside and let the bankruptcies begin. Later at the end of the day the Fedsters would all get together for a congtralutory toast and say “Whew! We dodged that bullet! We finally did what we should have done 12 years ago!”

  12. Mike says:

    The DGI and F.I.R.E. followers are in for a nasty surprise as their dividend revenue falls.

    I’m still amazed how this “market” stays aloft and continues to rise on nothing but hot air. Everything I’m reading online the fundamental investing decisions are all based on BTFD.

  13. DR DOOM says:

    The successful harvesting of the serfs wealth by de-basement requires no safe harbor for the targeted fiat currency the serfs are holding. The serfs can entertain themselves with games of chance in the Kings stock market or alcohol. The serfs and their future generations are being harvested and they will submit as is the nature of the serfs fate. The good news will be that un-employment will be less than half of what it was 3 weeks ago. The Kings stock market will boom to entice the rest of the serfs whom have not been separated completely from their remaining wealth to line up for fleeceing. The Kings henchman has hanged the last of the time value rebels in the square for all to see and be warned. The King has shown the serfs the depth of his compassion by distributing a portion of their de-based script back to them in order to buy bread. The King will post his edicts on how well the surfs are doing on a regular basis in order to remind the serfs that the King is a good King.

    • Beardawg says:

      Classic…and cool….well….not for the serfs I guess. :-(

    • VeryAmused says:

      Maybe you can try to become king or join the king’s court?

      Or you can stay a serf and rail against the king and his court and see where that gets you.

      I do feel your sentiment however.

      • VeryAmused says:

        And let’s remember that while it is good to be the king…heavy is the head that wears the crown.

      • DR DOOM says:

        VeryAmused: That middle ground of neither a serf nor a king was at one time in our past history claimed by the Patriot.

    • Implicit says:

      Sword up, quilts held tight. FREEDOM!!!

    • Shiloh1 says:

      Many acquaintances have mentioned 401K losses to me. I don’t give advice, but I listen. I am shocked at how many have only Target Date Funds and have no idea what they are about / what is in them. I ask if there are U.S. Treasury money market options or self-directed options through a brokerage and they look at me like they have never heard that before. Great job corporate benefits departments! I hope they get their @sses sued / claims on their employee benefits insurance policy.

    • MD says:

      Yes it will probably be great for stock prices, because the auspices of ‘disaster capitalism’ (never let a good crisis go to waste) will mean that the half of the people hired back will do the work of two people for the same pay, because they are desperate.

  14. Iamafan says:

    How to explain the massive Treasury auctions with close to zero yields. The trailing dividends of the SPY was a lot higher than Treasury yield. One has to be “wrong”.

    • DawnsEarlyLight says:

      Since when?

      • With the current global monetary policy these companies can afford to cut dividends. , Fed supports Wall St, and buys corporate paper, and big caps drop their dividends to avoid competing with Treasury auctions. Quid pro quo. The global money flow supports share price without offering investors a dividend. That will change after inflation reasserts itself.

  15. Danno says:

    The reason we all like coming here is Wolf tells the truth only because WOLF is one of the few with integrity and WE CAN HANDLE IT as we have seen it coming for a few years..

    95% of the world CANNOT handle the truth, thus are spoon fed convenient lies to continue to make them believe what their overlords tell them.

    Imagine telling the hard, cold facts now to people in lock down wondering about where their mortgage payment, next meal is coming from or if they will have a job? There would be mass hysteria…

  16. Cory says:

    In respect to the many insightful subjects raised I see, at the ground micro-level that a great percentage of small businesses will fail and will do so in the next year. As a manufacturer of pet and technology products I go all over SoCal and sell wholesale to retailers.

    What I see is sobering which is to say many were stretched before covid. Now, the brutal reality is beginning to emerge…. When tradesman come to my ranch to give bids they are still thinking of the economy past tense. Those here are the crowd searching for deals to be found and pitfalls to avoid….

    In each and every way all the articles tell me about things that affect me and millions daily. On dividends, I have an excellent pension based on 33 years of hard work instilling what I could on about 1,000 elementary students. Dividends are one source of income for the CalSTRS pension and it is easy to see how this will only add to pension fund stress….
    If we could get Newsom to stop sending checks to illegal immigrants and giving away free money it might be easy to survive in California.

    One last thing, I asked my CPA how many people who set-up a 401K actually get to money in this account for retirement say 30 to 40 years later. His answer? 5% or 1 out of 20. So the Federal Government gets all the taxes PLUS 10% which means another scam on people’s perceptions.

    Add to the reality that most do not understand the simple truth that if all baby boomers drew on the stock market with a short time frame it is likely that Wall Street will preempt retirees and take all profits leaving a pittance.

    Mark Barry of “Margin Call” fame indicated in recent times he is buying farmland that has natural water available on it…. Rome is now burning so buying this type of land and building on it with no mortgage is truly the best investment beyond all discussed here. It seems the abstract paper methods of money-making will be soon co-opted as discussed in Surveillance Capitalism (amazon best seller by Zuboff) that explains the virtual reality in a way that most here will never understand. If you read this text you will never see things in the same way.

    I attend college as a hobby. I collect degrees for personal awareness. I have seen first hand the mindset discussed in Lawerence Meads BURDENS OF FREEDOM: CULTURAL DIFFERENCE AND AMERICAN POWER
    Quote in amazon review:

    “Burdens of Freedom presents a new and radical interpretation of America and its challenges. The United States is an individualist society where most people seek to realize personal goals and values out in the world. This unusual, inner-driven culture was the chief reason why first Europe, then Britain, and finally America came to lead the world. But today, our deepest problems derive from groups and nations that reflect the more passive, deferential temperament of the non-West. The long-term poor and many immigrants have difficulties assimilating in America mainly because they are less inner-driven than the norm. Abroad, the United States faces challenges from Asia, which is collective-minded, and also from many poorly-governed countries in the developing world. The chief threat to American leadership is no longer foreign rivals like China but the decay of individualism within our own society.”

    Finally, I am a SoCal native-born Norwegian Surfer White Boy who moved to the barrio at age 14 and lived to tell about it….Brutal story that I think of when I see “Training Day” movie with Denzel Washington. With that said the ALL IMMIGRANTS from ALL COUNTRIES mostly hostile to the Western Culture tradition are being given the nation of California by all the whites leaving with there money. I am close behind. When I ask white compatriots why they are leaving California to the “others” they say it is futile to fight and they (and I) do not want to pay for all the free programs like I see all over the community colleges I attend.

    Business people are apolitical generally speaking. I think we are witnessing the end of Capitalism as outlined by Adam Smith and criticized by Karl Marx….
    Good Day Gentlemen.

    • RD Blakeslee says:

      “Mark Barry of “Margin Call” fame indicated in recent times he is buying farmland that has natural water available on it…. Rome is now burning so buying this type of land and building on it with no mortgage is truly the best investment beyond all discussed here.”

      Actually it has been discussed here, but conventional investors don’t pay much attention to it.

    • California Bob says:

      re: “Mark Barry of “Margin Call” fame indicated in recent times he is buying farmland that has natural water available on it”

      He’s late to the game. Water rights–esp. in California–have been more valuable than gold for a couple centuries now. Oh, and just because the water is on your land doesn’t mean it’s yours.

      • VintageVNvet says:

        10-4 to that cali bob,,, and now even if it rains on your dirt, the rain might not belong to you per recent Oregon decision.
        But IMO, the most likely most dangerous challenge is the now very extensive pollution of water and land that some so called modern farming techniques have produced all over USA, likely elsewhere.
        Even springs alleged to be coming right up out of the aquifer are now known to contain multiple synthetic substances, hormones, etc., including pharmaceuticals!
        And many places are discussing, may even be doing already, injecting sewage directly into the aquifer!!!
        No freaking wonder Gaia might be a tad bit angry with our species, eh??

  17. HD says:

    Throughout this mess, I keep thinking of those who lost their jobs, can’t pay their bills and just don’t know how to cope. I finished reading an article on MarketWatch just now about a 39 year old single mom with a three year old daughter who after five weeks is left with only 100 dollars in her bank account. Then I started reading the comments: often it was about how irresponsible she behaved financially, what with deciding to get pregnant, raise this child with no father in sight, not having an emergency fund, not planning ahead, blablabla.

    You know what? My wife and I are in our mid fifties with three adult children, two of which will finish college here in Belgium this year and the third one just having started. We have no debts, we both have our jobs, this week our youngest told us she needs a lap top computer for her studies so what do we do? Well, we just order one on line, pay it cash and be done with it. Will set us back about 800 euros, but we don’t have to worry for a second where the money will be coming from. O, and we also have an emergency fund. In short, we don’t have a financial care in the world. For now, that is.

    Why you ask? Because we were financially prudent, yes. But also – and this is a biggie – because this thing is hitting us at riper age, at the precise moment that we our consolidating our financial situation; In other words, we have also been lucky, plain and simple. Had this crisis occurred twenty years ago, we would have been extremely hard hit because at the time, we were up to our necks in debt.

    That’s why I’m starting to resent all those comments on how people in trouble should have seen this coming. Many of them simply are where we were as a family a generation ago.

    • gorbachev says:

      +10

    • Joe says:

      Decades of monetary debasing of currency , importing immigration for lower wages and inferior products as companies compete for dollars with changing of quality for quantity.
      No one has a chance…
      Game is rigged

    • neplusultra says:

      The United States is in the final stages of a dying empire. The majority of the population have been conditioned to blame themselves and anyone below them. We also live in a country which has no perspective on what life is like/could be like in a somewhat more egalitarian/functioning society. I work in the United States for a Germany company and my German colleagues are always shocked at how much dysfunction we put up with/ have to deal with as Americans. Unfortunately, at some point you have to think this country as a whole is getting what it deserves.

      • Cas127 says:

        “The majority of the population have been conditioned to blame themselves and anyone below them.”

        Oh, yeah, *that* is the multi-decade message of the MSM.

        Kaiser, please…

      • Bricks n mortar says:

        I have to agree with Cory’s comment that the decay of individualism is our greatest threat, not that that we blame ourselves. Everybody is a victim seems to be the new mantra.

        • p coyle says:

          there are no shortage of victims. some see victimhood as a badge of honor, whilst others see it as a mark of shame. divide and conquer.

        • MD says:

          Other people see the rise of hyper-individualism, with its concomitant lack of empathy and compassion and the glorification and moral/philosophical justification of greed/naked self-interest (step forward Ayn Rand and take a bow) as the problem…

          It is after all collective action that deals with life’s REAL challenges (ie not just the challenge of buying a bigger house and car in a vain attempt to make one’s neighbor’s jealous) as we are seeing most clearly all over the world at this very time.

    • Tony says:

      One thing is for sure, that single mother without a husband to share financial duties should not spend her last $100 on paying off bills. Nor should people possibly on the verge of poverty pay even one more bill after they withdraw in cash whatever funds they have in the bank.
      Only a DEBT STRIKE will get the plutocrats attention.
      Not one more consumer, tax or other bill paid, until real relief is at hand.

      BTW, How would your wife, or your daughter be doing without you?
      How come we never sympathize single dads raising their children?
      If single motherhood is an excuse for pity, then marriage should be a virtue.

      • rebelSpill says:

        Single Dads have their acts together – 100x more than the mom as that is the requirement for a father to get custody in the corrupt family courts. The media just wants to cultivate a culture of failure, shirking responsibility, shamelessness and narcissism.

        A society ignorant of history and disdainful of wisdom reaps what it sows.

    • Bob says:

      What I resent is those types of comments coming from people who seemingly have no problem with irresponsible mega-corporations being bailed out. I’m sure those same folks are relieved that the Fed bailed out their stock portfolios (in the short term, at least), and have no concerns that the CEOs wasted billions on stock buybacks to short-term goose their compensation, and by extension the commenters’ portfolios.

      Individuals are admonished to be prudent, not take excessive risk, save for a rainy day, etc. Corporations are rewarded for taking on excessive risk, because the reliance on the stock market for makes any significant downturn society’s problem (or at least the top 20% of society as measured by wealth).

      As another commenter above noted, the FED once again had a chance to hit the reset button and force the zombies and unicorns into bankruptcy, but blew it again due to short-term thinking. It’s hard to see any way out of this mess except total collapse, which of course will also be a huge mess. The politicians and their handmaidens at the FED are too cowardly to allow anything resembling a market economy to exist anymore, at least for large public companies, private equity, hedge and quant funds, etc. Market forces are fine for small businesses and the rubes that run them. The extent of the moral hazard is mind-boggling. At some point the pitchforks and torches will come out.

      • polecat says:

        The Fed didn’t do anything but, in the worlds of Daniel Plainview, “blow gold all over the place” … the ‘place’ being where the 90% and above live Life to the grifting fullest.

        The Fed is the prime enabler of all higher-then-kiting Finaddicts.

        May they all Overdose and Die !

      • Happy1 says:

        I don’t see any such comments in this forum, people here are committed to ending crony capitalism.

    • timbers says:

      How very Un-Replublican/Democrat of you.

    • Paulo says:

      Amen HD. I hit some tough times in my twenties (1981). I just went a got a job somewhere else while my wife stayed home with the kids. Worked away from home. Now, if you lose your job, you’re kaput….maybe for 1-2 years. Maybe for 5 years?

      You think folks will go back to borrowing and spend when this is over? Not likely. We’ll be lucky if the economy recovers to 70% one day.

      • MD says:

        As we can see though – stockmarkets don’t care about the ‘real’ economy. They’re just speculative playgrounds.

        And when you’ve a POTUS who is 100% convinced that the DJ index gives an accurate picture of a nation’s economic health – and not one corporation has ever created a single job just because its stock price has gone up – that’s a real problem it would seem for those who don’t have the money to ‘play the markets’ or flip real estate.

    • Saylor says:

      I’m 66 now. We were fiscally prudent. We got wiped out anyway due to the tech bubble (blow one, had to close up business and change careers) then ’08 (blow two and three with a fun one/two punch of market and health) Blow four more health issues and non existent health support industry.) Sometimes and quite often sh** happens. I have no dog left in the fight.

      • Zantetsu says:

        Sounds like there is no fight left in the dog either. I feel for you, man.

      • Clay says:

        Thanks for sharing, Saylor. I was raised by very fiscally prudent parents too. I’m on the cusp between Gen X and Millennial, but was aware of dotcom blowup, came into the job market after that and September 11th, and then affected by ’08 too.

        There seem to be far more fiscally prudent folks on Wolf Street than the population in general. People around my age who weren’t raised prudent too find it archaic and almost a turnoff. :/

        I do find these reminders of a bygone prudent mindset and anecdotes from folks like you and Paulo encouraging.

        Sorry to hear about your experiences with the blowups. So much of life is at the mercy of these events. Hang in there!

    • IanCad says:

      How easily prosperity forgets penury.
      You’re a good man HD.

    • Engin-ear says:

      I think that the real point behind the story of a single parent with 3 days of cash on the bank acccount is about the real meaning of the statistics.

      When the average income of the nation makes -10%, the real drama is for the bunch of people who made -95% and who are invisible in the stats because is doesn’t sell well the storytelling about bottom 10% of the population (on the income basis).

      • Engin-ear says:

        …and I add something: when you hear someone BLAMING poor because of this or that – that really means that this person is feeling guilty about letting such things happen (what is not bad) but rationalize the situation to make it emotionally acceptable.

  18. WES says:

    What isn’t reported are the public companies that cut their dividend and their stock falls from $20 to $2!

    Not only does an investor lose income they also lose their capital.

    A double whammy from which there is no recovery.

  19. Maz says:

    Are utilities that pay dividends also a risk here. Off the top of my head it seems like a no but would love to get any insight you guys may have.

    • Wolf Richter says:

      Check out mega-utlity PG&E, which cut its dividends to zero when it ran into trouble for other reasons. So this happens to utilities too.

      Power demand is down, but so is the price of natural gas and coal, which helps. But in general, utilities are less at risk than some other sectors whose revenues are getting totally crushed.

      • Shiloh1 says:

        The only stock my parents ever owned was “The Phone Company” (old AT&T), simply because my mother had worked there, buying a few shares over the years. Remember the modest quarterly dividend checks coming to the house like clockwork in the 60s and 70s. Not sure what they did after the breakup of AT&T, out of my hands.

      • California Bob says:

        So, PG&E is using this opportunity to replace all their dangerously outdated infrastructure and trimming all the nearby trees?

        • p coyleb says:

          certainly they are busy automating, or at least outsourcing, these vital concerns. it’s for the children.

        • MC01 says:

          Bob, last year I was talking with the owner of an Arkansas company specialized in woodland management. In short he does what PG&E and the State of California desperately needs doing.

          He told me the money to be made cutting down fire-damaged and dead trees and cleaning up power lines in California is “excellent” and payments are very quick. He considered opening a branch in California, hiring arborists from the East Coast to work after the hurricane season is over there: the money is so good he could still make a profit.

          But in the end the bureaucracy was simply too much for him. The size of the squads required by the State of California is enormous, and there are all sorts of State-specific rules which slow work down to a crawl. “If I cut down trees at that pace the State of Arkansas would revoke my contracts before the Sun is down” he concluded.

          California has millions of trees that need to be cut down and simply cannot do it at the present snail pace: they need at very least to streamline bureaucracy and speed up timber disposal procedures, otherwise every dry season will turn into “the most devastating wildfires in history”.

        • VintageVNvet says:

          MC01 and calibob,
          Unfortunately, the incredibly extensive red tape and paperwork in CA has made it very expensive to do biz there, biz of any kind.
          In SO many ways that did not apply at all when I started my construction biz in bay area 1980, that industry requires legitimate companies at least five times the labor/time to initiate and maintain paperwork that it is not surprising to me that the average cost of construction is approximately double many other places, be it commercial or residential.
          Many companies now ignore all of it until they get caught, then just fold up and disappear south and north and NE, etc., causing the legit ones even more costly insurances, etc.
          I have driven most of the 101, 1, 5, (20 from 101 to 99 before the great fire there) and many of the smaller roads in CA in the last 5 years, and, yes, it is literally an inferno waiting to happen.

        • California Bob says:

          Yeah, living in California is getting to be a PITA. But, I’m fourth-generation and it’s my home; I haven’t found anyplace I’d rather live, and I think I’ll have them inject my ashes into the aquifer ;)

  20. mr wake up says:

    Another one for the record books!

    No dividends no rent no cash flow.

    If the titans join the club then maybe Exxon can send me gift cards at the gas station in lieu of dividends.

  21. Norma Lacy says:

    Long line of comments here I see and thanks to all for sharing their thoughts. What I would like to know is why Carnival the cruise line, which has never paid a single Penny in taxes to the us fed or state, is getting a bailout. My money. Your money. To those a-holes who have nothing but contempt for us.

    I don’t have to pretend to barf. Words fail me, so I’ll shut up.

    • Joe says:

      Quote from a movie I thought was great…
      “It’s not the millionaires that is the problem. It’s the billionaire that s the problem”.
      Hearing Bill Gates says he’ll help humanity gives me the Willie’s.

    • Cas127 says:

      Norma,

      “why Carnival the cruise line, which has never paid a single Penny in taxes to the us fed or state, is getting a bailout.”

      Where are you seeing a Carnival bailout? To date, most stories have indicated that foreign flagged carriers (all of them) are not eligible for bailouts.

      NY Mag – far, far, far from some conservative outlet – says it isn’t a bailout – just more ZIRP Zhit…

      https://nymag.com/intelligencer/2020/04/the-fed-helped-carnival-but-in-a-way-that-makes-sense.html

    • Wolf Richter says:

      Norma Lacy,

      Carnival didn’t get a bailout. It raised money by issuing new shares and selling bonds. Which is what all companies should be forced to do instead of getting bailouts.

      However, the Fed indirectly bailed out Carnival because it re-recreated the junk-bond bubble that was blowing up, which allowed Carnival to sell those bonds in the first place.

  22. Joe in LA says:

    If he thought it would make the S&P go up, Jerome Powell would go on television and set a live chicken on fire. These folks have gone into the drinking bleach phase of supply-side economics.

    • polecat says:

      That chicken might just as well peck Jerome’s eyes out for jujubes, given the chance … especially with all the slaughterin goin on.

  23. sunny129 says:

    I focus on various sector/country/regional ETFs for dividend play compared to stocks with div. There is no guarantee that div cuts of the stocks in those ETFs won’t be affected down the road. I check them out at yahoo.com/finance for data like exp ration, holdings etc. For exanple FENY an energy div ETF – exp ratio 0.08% -double digit div – contains major energy companies (top 10 holding). This works me better than focusing on one stock!
    I do trade them although not frequently.

    In fact most of portfolio is predominantly focused on towards Div paying ETFs of various variety from all over the world.

  24. Bobber says:

    What happened to GE and Boeing dividend investors is awful. They get nailed on the stock price, and lose the dividend.

    Lesson: Be wary of companies that engage in financial chicanery including huge stock buybacks, no matter how big the name.

    • Rosebud says:

      2000 year crucifixion cycle

    • Shiloh1 says:

      Schiff mentioned GE on his podcast today in the context of the big S&P concentration in a few names in 2000 vs. 2020. He said that he said at the time in 2000 that GE was a hedge fund masquerading as a company.

  25. Maury Hafernik says:

    Why did Carnival Cruise line get a bailout??
    Simple

    They have paid lobbyists on a first name basis with congressmen ……..
    And you………
    Don’t

    • MC01 says:

      Where did Carnival Cruises get a bailout? Have I missed something in the industry news? Or perhaps the media are at it again? Remember the 40% increase in cruise bookings which was actually a 23% drop? ;-)

      Carnival Cruises was not “bailed out”: they managed to sell $4 billion worth of unsecured bonds coming due in 2023 and paying a 12.5% coupon. These bonds were in such high demand the yield is about 11.5%.
      The media has been trying to spin this story in all ways possible but they have forgotten to add the Fed (or to be more precise, the SPV set up and funded by the Fed) hasn’t bought a single junk bond yet, not even “fallen angels” like Ford Motor Co. and Continental Resources which were said to be be the prime target of this operation.

      If Carnival got bailed out, they got bailed out by people with no common sense. At the present Carnival is a company with no products or services to sell and their fixed expenses are by far the highest in the industry as they burn through about $1 billion per month.
      Even if Carnival is greenlighted by authorities to sail in late June/early July (and good luck with Italy and Spain, as both governments try to furiously backpedal on pledges to reopen) they’ll do so on a limited schedule and amid enormous difficulties. And how many folks will be in the mood for a cruise, especially with the ever present threat of new lockdowns? Uncertainty will do what the virus failed to do.

      On top of this unsecured bonds mean the holders are at the very back of line, not just in a bankruptcy but in any debt restructuring deal as well.
      In short those who accepted to lend money at Carnival at 11.5% yield had better hope the Feds will step in with a proper bailout.

  26. Keepcalmeverythingisfine says:

    I thought Carnival was not getting any bailout money because they are not a US based corporation. That’s what I think happened.

    Anyway, the stock market, especially during a bear market recovery phase, doesn’t reflect the economy today but is forward looking several months out. Yes without the Fed’s backstop we probably would have seen 50%+ drop from the peak to trough, but stocks always get way ahead of themselves during this phase of the market. Often there is another correction or two before a new bull market begins in earnest. What you see going on today is normal, including the slashing of dividends, jobs and capex.

    Another thing that happens during this phase of the stock market is people pile back into the former growth leaders thinking they got them at a discount. This time it is FAANG stocks. Unfortunately it is these former leaders that lag the new growth stocks by a wide margin. We don’t know who the new growth stocks will be, but I have some hunches, and when things do settle into the next expansion phase it will be tremendous. Much is going to change for the better.

    • sunny129 says:

      The Stock mkt is always forward looking is a bit worn out cliche. Did it see Corona hitting the mkt before FEb 19th? or before March 23rd?

      There is NOTHING in the past to compare with corona ‘black bat/swan effect, save Spanish Flu of 1918!

      As some one pointed out now – Fed is the Mkt and nothing else matters, in the short and intermediate term. But the corrosive effects of corona matters in the long term. Investing is passe just trading both calls and puts with hedges! Been in the mkt since ’82. This is the most surreal mkt of life time, built on nothing but the debt and continued Fed’s put, every time it sinks!

      • Keepcalmeverythingisfine says:

        Well I didn’t say the stock market has a crystal ball. It doesn’t predict the future, it discounts the present and is forward “looking.” There have been events in the past that have blind-sided the economy and the stock market. This is not the first one, but it is likely the worst of my lifetime. Also, the Fed is not buying stock direct (they don’t own the market), and it is highly unlikely to happen as this does nothing with regard to interest rates. The Fed is in the bond market, and it is monetizing debt, and both are bad, and that is why being in cash is a bad idea going forward. Assets (stocks, certain types of real estate, gold, etc.) are critical to own now.

        • sunny129 says:

          Also, the Fed is not buying stock direct (they don’t own the market),

          By directly supporting the Corp credit mkt they also are indirectly supporting the stock mkt. They are buying ETFs of corp bonds already. BOJ bought their own stock ETFs. Bank of Sweden bought Aoole stocks!

          Without a healthy Corp Credit mkt, the stock mkt will wither!

        • sunny129 says:

          Bank of Sweden bought Apple stocks!

        • sunny 129 says:

          The FED is the mkt.
          Today POWELL during press interview, confirmed it beyond doubt. Will support Corp Credit mkt at any cost!

        • Fat Chewer. says:

          After Spain’s discovery/exploitation of the New World, treasure ships loaded with a fortune in Silver, Gold, spices, etc would arrive every six months for over 200 years. All of this wealth went into the 80 year independence struggles with the United Provinces (Holland). The people of Spain never saw a single peso of that money. Indeed, after so much wealth had passed through Spanish ports, the people of Spain were even poorer than they were before due to the rampant inflation and the debasement of the currency.

  27. Jdog says:

    So the formerly fat cats who are retired and living off SS and dividends are getting a big income haircut.
    How long do you think they will hang around before they start looking for more fertile ground to plant their money…
    Some will go now, some will wait and see if the dividends come back.
    If they don’t, they will go too.
    Will companies borrow money to pay dividends? Doubt it, they are still paying loans floated to buy back their own stock. Unless earnings come back quickly it is going to be a long way down to find the bottom.
    They just eliminated the only reason to even be in the market.

    • Rosebud says:

      40,000 attend 2019 Berkshire Hathaway AGM.
      2 to attend May 2, 2020 AGM, Warren and GREG ABEL

      That’s a haircut.

  28. Dropping interest rates to zero was an incentive to corporations to cut dividends? Now the chase for yield intensifies? Corporate bonds, after tripling down on the deficit, they are last man standing.

    • sunny129 says:

      Virtually all Corporate bonds have the active support of the Fed. Next are the high yield bonds, with without jawboning.

      The Fed knows the Corp credit mkt (Achilles heel) upon which the Equity mkt is built. By supporting, it is automatically buffering the stock mkt, to certain extent.

    • DawnsEarlyLight says:

      Corporate bonds are a bed made to be laid in. May you RIP. Soon.

  29. Jdog says:

    It amuses me how no matter how bad this thing gets, there are those who refuse to recognize it for what it is..

    I guess that’s normal, if you have never lived through a tornado, you would not recognize the signs…. Those who have run for the storm shelter.

    In every disaster there are those who refuse to protect themselves, thinking what is happening will not affect them. By the time they realize they are wrong, it is too late.

    This is the perfect economic storm, and the Fed cannot stop it anymore than it can stop a tornado. It is going to do a lot of damage, and some will not survive it. The best you can do is try to protect yourself…

  30. David Hall says:

    I remember Accounting 100 & 101 income statements and balance sheets. Had to look up the definition of asset impairment today as I did not make it far in accounting.

    Buying high yield stocks and partnerships is risky business.

    During the 2008-2009 crash there were accusations that bond rating companies did not know what they were doing. So many homes lost value, the Treasury was not able to buy them all to prop up the housing market.

    Before this COVID crisis there were warnings about a high corporate debt/GDP level. I think the Fed should not try to buy all the world’s junk bonds. It would not be a good investment.

    • sunny129 says:

      ‘It would not be a good investment’

      For whom? For Fed or Taxpayers!?

      Was buying MBSs of sub-prime mortgages a good investment? Fed had never bought MBSs of any kind, any time before in it’s entire history! It was supposed to be ‘temporary’ with normalization started in 2015. THat came sudden stip in Jan ’19 with back tracking with 3 – 25 basis cuts! Now they are buying the MBSs AGAIN!

      The IG bond ETF – LQD – 50% of which is BBB or below. If they don’t support b, BB or BBB, the so called investment grade ( IG) above that level will be slowly downgraded, when there is default of payment. Once they start going down, Many pension funds holding them have to purge them, by their own rules! So Fed is holding the line- the support – by buying them!

      As I have repeated, if the Corp Credit mkt craters , so is the Equity Mkt! They riding holding the tiger’s tail, but as long as they can create digital money out of thin air, the show will go on!
      Is there any outrage or demand for accountability? No. B/c the show must go on, for the top1%!

  31. MonkeyBusiness says:

    Seems the only safe play is Tech.

    Google reported strong Jan and Feb numbers plus a weak March, but hei stock is up after hours!!!

    Apparently people keep buying and staring at ads!!!

    I honestly can NOT imagine a scenario where tech is down. Bad economy, it’s good. Good economy, it’s good.

    • sunny129 says:

      When their Ad revenue/earnings keep going down, along with the Economy, their multiples will reflect the reality! Just a matter of time.

    • Kevin Carhart says:

      The shooting at Youtube headquarters was only 2 years ago.

      The Youtube children’s content fiasco also happened a short time ago and is ongoing.

      Cambridge Analytica happened a short time ago.

      None of these things is over – the corporations just gained a special status where critical thinking is retarded, because a large number of people are stuck with tech-mediated communication or barely any communication. Impunity is not a good thing.

      What does it mean for tech to be “up”? The people making that observation, buying and staring at ads, and doing the securities trades are subjected to tech’s world including the churn and root causes that makes the above three examples.

    • Wolf Richter says:

      MonkeyBusiness,

      Google’s ad revenues in Jan and Feb were OK, but as CEO Pichai put it: March saw “a significant and sudden slowdown in ad revenues.”

      And I can confirm that — based on my own ad revenues from Google: the big slowdown in ad revenues started in mid-March.

      Wherever GOOG is going to go, companies are pulling back on advertising because it’s the easiest and biggest thing to cut, and for stores that are closed it doesn’t make a lot of sense to advertise.

      So it looks like Google’s second quarter is going to take a hit to revenues.

      • MonkeyBusiness says:

        Hei Wolf, market does not believe us it seems, stock up after hours.

        But then again, Google has enough money to keep buying back stock.

        • Another Scott says:

          I think that’s because a lot of investors think that Google will survive this crisis better than other media companies. Look at the strain news organizations are under; traffic to their websites are through the roof, but revenues are down and they’re furloughing staff. A number will go under or will be severely downsized. This means when companies revive their ad spending even more of it will go to Google – or at least that’s what some people on Wall Street think.

      • MCH says:

        One wonders what Facebook is going to say tomorrow, and whether the after hours reaction will be like Google.

        In my narrow perspective, both Facebook and Google are more or less one trick ponies. Focused on using other people’s data to gain ad revenue. Their respective hardware businesses are a joke, and nothing but money losers, and their other bets/moonshots are essentially wasteland of engineering talent.

        The two guys I know at Google’s search engine business both say the same thing, the hard ware business is a joke, it should be jettisoned along with all the waste of resources that gets sent to the other bets. Anything that has real money making potential resides in Google, see Youtube and Google Cloud… the rest of it is just people marking time.

      • FinePrintGuy says:

        When google catches a cough, the rest of the online advertising companies catch COVID 19.

    • DeerInHeadlights says:

      As others have said, it’s a matter of time. When the economy is shut down hard like this, very few sectors will be immune to the ill-effects. Today, we are looking at a biological problem, i.e. the pandemic. What happens if there’s an electronic ‘pandemic’ in the future, that cripples the Internet? Some rogue entity, rogue government, prolonged electromagnetic storm a la Carrington event? If you don’t have sufficient and appropriate safeguards, nothing is immune from a crash.

  32. breamrod says:

    the fed has a 100 trillion $ problem. They got a lot of printing to do to try and negate this collapse . I just wonder if confidence collapses and with it the currency.

    • cb says:

      Breamrod says: “the FED has a 100 trillion $ problem”
      ____________________________

      Did you mean to say …. the FED IS a 100 trillion $ problem …

  33. Rcohn says:

    There are only 4 ways to raise monies to pay dividends.
    1.selling equity- this dilutes current stockholders
    2.borrowing money- this leverages up the company and creates potential problems in the future
    3.selling assets. This is basically liquidating the company, although some assets are not consistent with a company’s objective and are a legitimate way to raise money.
    4.from operating earnings. This is the ONLY way to generate cash to pay dividends in the LONG RUN

  34. Jdog says:

    The Fed cannot buy all the bad debt worldwide……

    • Patrick says:

      They only need to buy the bad debt in the US. And when the Fed buys all that corporate debt, companies will be is freed up to continue recklessly buying back more stock as the inflation the Fed created ‘inflates’ away all that bad debt it holds.

      Look at this way. If the entire base money supply of a country is $1 Trillion and all of companies combined have $2 Trillion, how significant is that ‘debt’ if the Fed creates an additional $100 trillion in base money to mop it up? Debt isn’t the problem. It’s the destruction of currency, and loss of savings and purchasing power that will come from the Fed buying it up.

      The fact that the Fed has adopted a policy of unchecked QE, indicates that their balance sheet (and our purchasing power) has shifted from the left side, to the right side of the hockey stick of currency devaluation.

      • cb says:

        Theft is the problem ……………..
        The FED is the operator ………………
        Debt is the tool …………….
        Currenct devaluation is a symptom ……….

      • Jdog says:

        People confidence in the Fed is based solely on 2008. The Fed was able to pull a rabbit out of its hat once, and it has created a fanatical religion which has faith the Fed is god with unlimited powers. This is nonsense. If you want to believe then by all means do so, I never try to convince people of the futility of religion, but at least admit it is faith and not economic data or calculation you are basing your decisions on.

        • cb says:

          Many fo us think of the FED more as the devil than as God. They pulled no rabbit out of a hat. They simply stole from some, for the benefit of the select. And they continue their same plunderings.

  35. DR DOOM says:

    Reading posts on WSR after a couple of reloads of the Heck Mug is a muted equivalent of when in Zombieland Woody took out a Zombie with a car door and proclaimed that it’s the little things that make life worth living.

  36. OutWest says:

    I’ve discovered in recent years that dividend income or any other income doesn’t outrun spending cuts on a household level….funny how that works.

  37. Patrick says:

    THIS is why I only buy dividend paying ETF’s. Particularly one’s that hold large cap infra stocks and/or are diversified across many holdings.

    It’s become popular these days to disparage ETF’s but when you’ve woken up to your 4th or 5th single stock holding of a supposed solid infrastructure company, opening down 40% pre-market because they decided to cancel their divi before the retail sheep had the chance to escape, it gets REAL old REAL fast. While dividend ETF’s are by no means immune to slashed yields, they have a couple things going for them in this area. One is that the fund managers are far more likely than you to see a cut coming and get out ahead of it (not to mention they have access to trading hours you don’t). And Two, the companies held by a fund don’t all cut their divis at the same time, so the ETF won’t just open waaaay down with a 0% dividend with you trapped in a stock at a 40% haircut. When a single holding in an ETF cuts its dividend the fund will drop by a far smaller percentage and the management can then either drop it to pick up something better or continue to hold the company if it’s longterm outlook is worth while.

    The thing about single companies is that they can ‘look’ solid with a bright future but that can evaporate overnight in both a bull and bear market. And when that happens, you’re the sucker left holding the bag with the choice of selling at a huge loss or watching it slide lower another 40%. No Thanks.

  38. DJ says:

    The black swan theory or theory of black swan events is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalised after the fact with the benefit of hindsight.

    Pandemics are a historical fact and should not come as a surprise.

    I dont consider this event a black swan. The reactions our governments have taken may be.

  39. IanCad says:

    How easily prosperity forgets penury.
    You’re a good man HD.

    • Rosebud says:

      Harry Dent, Jr early books on Demographics was a good primer on the life spending cycle, and we see it in play with this crisis. Age 39/40?, you are born in USA, fertility rates were at its lowest late 70s. No problem getting ample attention from school teachers later in life. See how that worked out for you? But this post isn’t about target shooting. It is not in passing that the economy unravels on a fertility rate pinwheel. Look at the difference between 1961 and 1965. A real shooting then.

  40. Island teal says:

    The Ponzi will be complete when the FANNGs and / or Tessssla ask for a bailout. I’m still laffing at the Lakers getting a $4kk+ PPP loan. Oh..they gave it back….But did the a..clown from finance who filed the paperwork get fired? Of course not …No repurcussions 😡😡

    • cb says:

      There is little hope to assess where you are in the finance quagmire if the most basic question goes unanswered:

      How many dollars, physical and digital, are in existence, who owns them and where are they?

      Without the answer to that question, all financial writers and financial players are blind.

    • MonkeyBusiness says:

      Google, Facebook, Apple are sitting on BILLIONS of cash. why would they need a bailout?

      If anything, they will be turn into even bigger monopolies later.

    • Jdog says:

      We are seeing a fundamental change though you have to admit. Corporations are starting to be held accountable, and that is the start of a new consciousness. It is different than 2008 when government and the corporate world conspired and basically told the people to like it or lump it.
      It is slow, and subtle, but it is happening. People are beginning to see the corporation as the problem and not the saviors. Public views are changing, and if the suffering is as bad as I think it will be, this is only going to continue.

      • MonkeyBusiness says:

        You are too optimistic I think. I don’t see anything along this: “Corporations are starting to be held accountable”. Certainly they can be shamed occasionally, like all those big companies taking money intended for small businesses, but then again the number of companies returning money is limited at best.

  41. Tanstaafl says:

    A litte off topic: It never ceases to amaze me how the exact same article here and on ZH generates two different kinds of comments (and behaviour). Name calling, bragging, and conspiracy theories on one site, discussions and valuable “boots on the ground” information on the other. I guess it’s easy to find out which is which.
    @all: Thank you very much for the provided information/opinion.

  42. Jeremy Wolff says:

    As soon as GDP growth returns, dividends will follow.

  43. ML says:

    UK – Royal Dutch Shell has cut its dividend for the first time since WW2 following the collapse in global oil demand due to the coronavirus pandemic. Cutting quarterly dividend by two-thirds, 47 cents to 16 cents.

    BP has maintained its dividend.

  44. c1ue says:

    When I first started investing – 30+ years ago as a teenager, I hit upon the brilliant scheme of buying stocks with the highest dividends as the safest strategy.
    Fortunately, I had tailwinds in my favor back then: most of the stocks were the dogs that high dividend stocks typically are, but one was the company that later became Starwood (now Marriott).

  45. nameless says:

    No big deal. The Fed is buying up everything now. Markets make no sense no more. So they lost there dividends the market will rally on the news and the gains in stock prices will offset that dividend. All bad news leads to a Fed induced rally. Markets should be crashing. Over 30 million jobs lost. Companies shut down for months losing millions and markets rally. Capitalism at its best. The death of the dollar will straighten things out soon. All paper assets will be toilet paper. 49 years of toilet paper for money is coming to a end. Debt can only be paid back by creating more debt. All Ponzi schemes blow up.

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