With a global pandemic impacting consumer demand and corporate operating models, company cash flow trends have been altered. Some firms have cancelled their dividends to preserve capital to maintain staffing levels, support their workers or meet other operating expenses (i.e., debt service). Others have been forced to suspend dividends, as well as buybacks, as a result of receiving support from the US government under the CARES Act legislation.1
Either way, the ramifications of dividend adjustments have been felt up and down the cap spectrum, with more noticeable trends in certain sectors, irrespective of the size of the company. The adjustments also underscore the differences between dividend-focused ETF strategy methodologies and why performance may be diverging in our current environment.
Broad market dividend data
To facilitate the current dividend trend analysis, companies within the S&P Composite 1500 Index were analyzed and segmented by their respective market cap ranges: large cap (S&P 500), mid cap (S&P 400), and small cap (S&P 600). Any firm where the most recent or projected2 dividend is lower than its prior four-quarter average was counted as a decrease. Suspensions and omissions were much easier to identify, as a dividend was no longer published.
For the S&P 1500, 84 firms have suspended their dividend, roughly 6% of all firms. The actual weight of those firms represents just 1% of the S&P 1500’s market value, as many are small-cap firms. The table below depicts the breakdown for the broader market and the different size segments. Small-cap firms, where 4% of the S&P 600’s market cap has cut their dividend, lead all segments.
Market Cap Breakdown of Dividend Cuts