A pronounced economic slump sparked by the coronavirus outbreak has imperiled a popular investment strategy: buying dividend stocks.
These stocks have traditionally been highly coveted during periods of market turbulence because they provide shareholders a dividend or a guaranteed return, typically paid out annually out of the company’s profits or reserves.
That investment approach is now floundering due to the coronavirus pandemic as many companies have suspended dividend payments and scrambled to conserve cash given that their revenues have evaporated and swooning financial markets have fueled worries over their ability to repay debt.
Investors are concerned.
“Companies with high sustainable cash flow, in traditional yielding sectors such as telecom, infrastructure & real estate investment trusts, are not expected to cut dividends, so when they do, it is a shock to investors,” Sat Duhra, co-fund manager Asian dividend income strategy at asset manager Janus Henderson told CNBC.
In the last few days, large financial institutions such as HSBC and Standard Chartered have cancelled plans to make dividend payments for 2020. Airbus and Rolls Royce have decided to do the same.
The spotlight is on U.S. banks next. After the Reserve Bank of New Zealand asked banks in the country to put dividends on hold, Australia’s financial regulator followed suit by pushing local banks to do the same.
UK banks have halted payments and there are growing concerns that U.S. banks may cut dividends too.
Duhra of Janus Henderson told CNBC that he has reduced allocations to both energy & banks recently for a number of reasons, including worries around companies’ ability to pay dividends.
The same view holds for real estate investment trusts or REITS in Singapore that were dividend darlings until recently.
“This sector is a now a real concern with respect to dividends, and anything with exposure to retail and hospitality will continue to face pressure. We have sold any exposure to these areas. Singapore REITs have not shown the defensive qualities expected by investors and there may be further stress if dividends do indeed get cut. This is not currently a sector we are looking to add to.”
Given the spate of dividend suspensions, some investors are voicing their displeasure. HSBC investors have called for an extraordinary general meeting to explore options for action against the bank for culling its dividend due this year, the Financial Times reported.
Still, investors may have limited options to extract payouts from companies that have decided to suspend dividends.
Janus Henderson’s Duhra said the dividend policy of a company is at the discretion of the board and it is unusual for companies to guarantee dividends.
“Dividends tend to be linked to earnings”, he said, “which gives companies room to reduce dividends if profits fall sharply.”
As per Janus Henderson’s global dividend index report published late February, companies in Japan and the U.S. ranked the highest in terms of delivering high dividend growth to shareholders in the last decade.
Companies in Europe lagged their global peers while those in Singapore, Hong Kong, Canada did well in 2019.
Oil dividends rose the fastest in 2019 with technology being the leader in dividend payments in the last 10 years.
While large swathes of financial markets have been rumbled, dividend stocks in select sectors still offer potential to investors, according to Credit Suisse, which believes that investor concerns relate to the ability to pay, the willingness to pay and the potential for dividend delays.
While recognizing the current economic realities, the bank is recommending greater exposure to consumer staples, healthcare, real estate and telecom stocks.
Credit Suisse has recently added companies such as Sanofi, BAE Systems, Philip Morris and Elisa to its conviction list while removing big names like Blackrock and BP due to concerns over the sectors they represent.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
