Is everyone happy today? Regular headlines about horrible earnings, high unemployment, and elimination of dividends are our new normal. Be careful, it’s very easy to get depressed and I’m very serious about that.
I’ve got an employee at work that usually turns to a downward spiral of negativity when things get tough. She’s highly educated and good at what she does but she is draining at times. Just this past Friday, I had to refocus her on positive communication and accomplishments.
“If you don’t find a way to make money while you sleep, you will work until you die.”
Warren Buffett
So, today we are focusing on companies that are showing strength. They are either holding or increasing their dividends as headwinds of COVID-19 uncertainty loom. With interest rates near 0%, many retirees have little choice but to turn to dividend paying stocks.
And that’s where my Master Stock List really helps keep the focus on quality. Until you feel the sting of dividend cuts it’s really hard to understand the impact that it has on retirees. Seriously, it’s a gut punch to see your dividend income drop.
Respect (and buy) The Power
Hundreds of companies have eliminated their dividend this year. Think of all the retirees that are now unable meet their needs. This is a real thing and it’s horrible.
But my focus is on the powerful companies that hold or raise their dividend knowing the economic environment is in bad shape. And it’s impressive how some companies are behaving.
These are not normal times. Most companies are just trying to survive and I’ve tried to weed those out of my Master Stock List. When a company decides to continue paying their normal dividend in these tough times, they get my respect. Exxon CEO Darren Woods said in Q1 that 70% of their investor base is made up of retail and long-term investors that expect a strong dividend.
“A large portion of our shareholder base has come to view that dividend as a source of stability in their income, and we take that very seriously.”
Exxon Senior Vice President Neil Chapman on 7/31/20 Q2 earnings call.
But when a company raises their dividend then “WOW!” is about all I can say. Raising a dividend in the face of COVID-19 headwinds is a serious sign of strength and confidence. This is something to pay attention to when buying or holding a stock.
If safety of principal and dividend is important, make sure your stocks will stand-up to the likes of today’s (and future) economic conditions. In May, I wrote about revisiting my stocks with just that purpose. Having stocks that are just trying to survive isn’t something I want in my portfolio.
Tracking The Master Stock List
I’m truly impressed by a company that looks the “devil virus” in the eyes and raises their dividend. Since I’ve already got a stock watch list, it’s important to track how those companies are behaving with respect to their dividend.
With Level 1 and 2 companies potentially holding larger amounts in my portfolio, it’s important that those companies deliver. Four out of five of my Level 1 companies have increased their dividends.
As stated earlier, Exxon has stated that maintaining their dividend is a priority. We’ll see how that plays out in the future. Many don’t agree with Exxon’s decision but that’s why companies hire leaders and boards … to make the big decisions.
The companies that are “hold” haven’t reached the point where they need to raise their dividend. Usually, that’s on an annual basis and some raised their dividend just before COVID-19 started.
Level 2 stocks have been equally impressive. Remember, several of these stocks were battling for Level 1 status so it shouldn’t be too surprising. Names like Pepsi and Colgate-Palmolive could easily have been Level 1’s. It’s exciting to see what companies like 3M and Pfizer do when they need to make a dividend increase decision.
There are still many future decisions for Level 3 companies. Wells Fargo (Fed mandated) was a tough decrease but that’s what happens when you get involved in banks. Royal Dutch Shell was a complete shocker to many investors.
Yes, I took a hit on the RDS dividend cut (and price decrease) but I feel bad for the many UK investors that owned so much of the company. It’s proof that you shouldn’t fall in love with a company.
Summary
Dividend hikes are a sign of strength during normal times and a bold statement when they’re made in the middle of a recession. So far, the Master Stock List is holding up pretty well to the economic impact of the devil virus.
There’s a reason I’m willing to hold more of the Level 1 and 2 companies in my portfolio. I think their dividend decisions throughout the year will clearly show that strength wins in tough times.
Honestly, I’d even be willing for a company to “hold” their dividend for the right reasons. I’m not one that needs a company to increase it every year just to maintain a Dividend Aristocrat or King status. There are a few reasons to not increase a dividend … just ask CVS about their dividend plan.
I read a lot of blogs and I see so many portfolios that hold many companies that have cut or eliminated their dividend. I remember seeing those last year and saying to myself “When times are bad the dividends of those companies are toast.” Relying on dividend income to pay the bills should be a lesson we learn now before we are in retirement.
I recommend everyone rethink what’s in their portfolio. Look for strength in the face of tough times. Again, it’s so impressive seeing dividend increases from strong companies when hundreds of others are destroying their dividends and hurting investors.
Thanks for reading!
Mr. TLR