These 3 Dow Jones Stocks Could Suffer Brutal Dividend Meltdowns

April 8, 2020 4:47 PM UTC
Bargain hunters dumpster-diving for yield should beware. Three of the Dow's biggest stocks could suffer brutal dividend meltdowns.
  • Credit Suisse warns that three of the Dow Jones Industrial Average’s highest-yielding stocks could soon send their dividends to the cutting floor.
  • Boeing, Chevron, and Exxon could be the first high-yield stocks in the index to reduce or suspend their dividends.
  • Will they be the last?

The stock market’s “sell everything” moment dealt a crushing blow to asset valuations, causing nominal yields to spike ahead of the decade’s first earnings season. But bargain-hunters dumpster-diving for yield should beware.

Credit Suisse warns that three of the Dow Jones Industrial Average’s biggest names could dramatically reduce or even eliminate their dividends in the days ahead.

Chevron & Exxon Can’t Raid the Piggy Bank Forever

Chevron and Exxon may be forced to slash – or even eliminate – their dividends in the quarters ahead. | Source: Jonathan Weiss/Shutterstock.com

When the stock market rang in the new year at record highs, the last thing on any investor’s forecast was a global pandemic that would force a near-total shutdown of the world economy.

Nearly as unexpected was the prospect of an oil price war that would suddenly put two of the energy industry’s safest dividends – Chevron and Exxon Mobil – at risk.

Of course, January feels like a lifetime ago.

Exxon (red) and Chevron (blue) have endured steep drawdowns in 2020. | Source: Yahoo Finance

Chevron hasn’t cut its dividend since the Great Depression, and CEO Michael Wirth said last month that the company doesn’t want to break that 86-year streak.

“Our financial priorities remain intact. And the dividend is at the top of that list of priorities,” Wirth told CNN Business. “Our shareholders depend on that dividend.”

Exxon CEO Darren Woods delivered a remarkably similar statement during a CNBC interview this week.

A lot of our shareholders are retail shareholders — people who depend on that dividend — so we’ve been pretty committed to maintaining that and if necessary in the short-term using the balance sheet to support it.

The problem is that the two Dow Jones oil titans are drowning in the tide of a devastating economic tsunami that some experts predict could be as severe as the Great Depression.

Energy stocks must drink a particularly potent risk cocktail, as the coronavirus downturn pummels demand while the Saudi-Russia price war floods the market with supply. Absent a deal, energy analysts warn that oil prices may even dive into negative territory.

Chevron and Exxon are at the mercy of the crude oil price (black). | Source: Yahoo Finance

Unlike their peers in the airline industry, Chevron and Exxon both boast strong balance sheets. They can raid that piggy bank to keep their dividends intact, but not forever.

Woods conceded as much, warning that although Exxon’s dividend can weather short-term headwinds, that may change “if we haven’t seen a recovery next year.”

Boeing Dividend on the Cutting Floor as Dow Giant Begs for a Bailout

Boeing is begging for a bailout, so investors shouldn’t expect to get a dividend anytime soon. | Source: ERIC PIERMONT / AFP

Even a rapid economic recovery might not be enough to rescue Boeing’s dividend, which has been brutalized by one of the least envious 13 month-periods any public corporation has ever endured.

The Dow Jones aerospace giant’s stock nominally offers 6.3% yield, but the company has already suspended its dividend, along with its share repurchase program.

Given that leadership is begging for a government bailout – and the likelihood that this bailout will come with strings attached that prioritize employee welfare over investor payouts – shareholders shouldn’t expect the company to reinstate stock buybacks or dividends anytime soon.

Vanishing Dividends Aren’t the Only Stock Market Headwind Investors Need to Fear

The silver lining for Dow Jones bulls is that stock market downturns tend to precede dividend cuts – not the other way around. So investors don’t necessarily need to brace for another equities implosion once the dividend-cut dominoes start to fall.

The bad news is that companies aren’t just going to slash dividends. They’re also halting share repurchase programs at an alarming rate.

S&P 500 companies bought back $5.29 trillion of their own stock over the past decade, including a record $1.5 trillion in the past two years alone. But this crucial pillar of stock market growth is set to evaporate by as much as 50% in 2020.

Maybe the floodgates open again in 2021, at least among companies that don’t take government bailouts. But with bipartisan opposition to stock buybacks festering in Washington, analysts warn there’s a non-zero risk that they never return at all.

Disclaimer: The opinions in this article do not represent investment or trading advice from CCN.com

Sam Bourgi edited this article for CCN.com. If you see a breach of our Code of Ethics or find a factual, spelling, or grammar error, please contact us.

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Josiah is the U.S. Editor at CCN.com, where he focuses on financial markets. His work has also been featured on Yahoo Finance and Investing.com. He lives in rural Virginia. Connect with him on LinkedIn or Muck Rack. Email him directly at josiah.wilmoth(at)ccn.com. Josiah Wilmoth is a Trusted Journalist.