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Senate 2T Stimulus Bill - Dividend Concerns

All,  

It appears (but not certain as the bill has not been officially passed yet) that the Senate 2 Trillion Stimulus Bill has a provision that precludes businesses that take loans from the government from paying a dividend during the loan and the 12 month period after the loan.  

So .... say if Large Company X (revised to be generic) has a government loan (versus an outright bailout) ... no dividend?

If so, holy mackerel!  I doubt that Congress is fully aware of how many senior citizens count on those dividends and have set up their portfolios to be dividend-centric.   

I can see limiting buy-backs in that manner and I could see putting in a cap so that dividends are not increased.  But eliminating the dividend entirely?  That seems quite alarming to me and I'm more of a capital gains investor.  I can only imagine what those that have Dividend-yielding OEF and ETFs are thinking if this truly becomes law.  

ctyankee

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Re: Senate 2T Stimulus Bill - Dividend Concerns


@ctyankee wrote:

All,  

It appears (but not certain as the bill has not been officially passed yet) that the Senate 2 Trillion Stimulus Bill has a provision that precludes businesses that take loans from the government from paying a dividend during the loan and the 12 month period after the loan.  

So .... say if Delta Airlines has a loan (versus an outright bailout) ... no dividend?

If so, holy mackerel!  I doubt that Congress is fully aware of how many senior citizens count on those dividends and have set up their portfolios to be dividend-centric.   

I can see limiting buy-backs in that manner and I could see putting in a cap so that dividends are not increased.  But eliminating the dividend entirely?  That seems quite alarming to me and I'm more of a capital gains investor.  I can only imagine what those that have Dividend-yielding OEF and ETFs are thinking if this truly becomes law.  

ctyankee


I wholeheartedly agree with this, conceptually.  Why should government loans/grants to businesses be sent right back out to investors, in the form of diveys or buybacks, rather than staying within the business?  Nevertheless, Boeing has already suspended their dividend.  Delta and United don't pay a divey anyhow, and both American and Southwest are not considered great divey paying stocks, for income, for a retiree!  In fact, I don't think the airlines are considered great growth stocks either!  8-))

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Re: Senate 2T Stimulus Bill - Dividend Concerns

But a lot of other companies will get loans or grants and this language may well be part of any new packages as well.  Imagine no dividends for any 500 index company or total stock market company that get help.  The ones who don't get/need help and have a dividend may do very well in the future.

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Re: Senate 2T Stimulus Bill - Dividend Concerns

Stimulus cleared Senate 96-0, now to the House.

Government bailout comes with strings attached. In the past, this has included some of the following - management changes, reduction on the scope of business, dividend cut/elimination, buyback limitations, etc.

Also note that from the section cited, preferred dividends won't be restricted. May be those will become more popular.

YBB
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Re: Senate 2T Stimulus Bill - Dividend Concerns

Nothing new about prohibiting dividends and buybacks to co which get federal money under $2T recovery bill. 2008 TARP had similar provisions for banks that accepted loans from Treasury to boost liquidity. Some banks like WFC, JPM and GS were forced to take TARP loans even though they were adequately capitalized and didn’t need the loans. Those banks paid the loans off in June 2009. .

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Re: Senate 2T Stimulus Bill - Dividend Concerns


@ElLobo wrote:

@ctyankee wrote:

All,  

It appears (but not certain as the bill has not been officially passed yet) that the Senate 2 Trillion Stimulus Bill has a provision that precludes businesses that take loans from the government from paying a dividend during the loan and the 12 month period after the loan.  

So .... say if Delta Airlines has a loan (versus an outright bailout) ... no dividend?

If so, holy mackerel!  I doubt that Congress is fully aware of how many senior citizens count on those dividends and have set up their portfolios to be dividend-centric.   

I can see limiting buy-backs in that manner and I could see putting in a cap so that dividends are not increased.  But eliminating the dividend entirely?  That seems quite alarming to me and I'm more of a capital gains investor.  I can only imagine what those that have Dividend-yielding OEF and ETFs are thinking if this truly becomes law.  

ctyankee


I wholeheartedly agree with this, conceptually.  Why should government loans/grants to businesses be sent right back out to investors, in the form of diveys or buybacks, rather than staying within the business?  Nevertheless, Boeing has already suspended their dividend.  Delta and United don't pay a divey anyhow, and both American and Southwest are not considered great divey paying stocks, for income, for a retiree!  In fact, I don't think the airlines are considered great growth stocks either!  8-))


@ElLobo 

I edited my post to make the company generic.  However, Delta *did* pay a very strong dividend before it was suspended.  But, let me throw your logic back at you, if Delta is not a growth stock and can't pay a dividend during the loan and the year after the loan ... who is going to be an investor in Delta other than the government?  With the stock price in the toilet, who is going to give them a substantial line of credit?  What's next ... bailout plan #2?  Or is the government just going to own the airline industry or cut its losses, leaving us with fewer carriers (already a dangerous thing for consumer pricing issues)?  

The lack of dividends could result in throwing the baby out with the bathwater.  If you don't like the idea of some taxpayer money being used for dividends (that senior citizens count on) ... I hope you like the idea of *all* taxpayer money potentially wasted on a bailout with provisions that preclude it from being successful.   

ctyankee

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Re: Senate 2T Stimulus Bill - Dividend Concerns

"I edited my post to make the company generic.  However, Delta *did* pay a very strong dividend before it was suspended.  But, let me throw your logic back at you, if Delta is not a growth stock and can't pay a dividend during the loan and the year after the loan ... who is going to be an investor in Delta other than the government?  With the stock price in the toilet, who is going to give them a substantial line of credit?  What's next ... bailout plan #2?  Or is the government just going to own the airline industry or cut its losses, leaving us with fewer carriers (already a dangerous thing for consumer pricing issues)?  

The lack of dividends could result in throwing the baby out with the bathwater.  If you don't like the idea of some taxpayer money being used for dividends (that senior citizens count on) ... I hope you like the idea of *all* taxpayer money potentially wasted on a bailout with provisions that preclude it from being successful."

Funds, especially index funds.  Individual income investors won't buy it.  Neither will growth investors!  About as generic as you can get!  8-))

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Re: Senate 2T Stimulus Bill - Dividend Concerns


@ctyankee wrote:

@ElLobo wrote:

@ctyankee wrote:

All,  

It appears (but not certain as the bill has not been officially passed yet) that the Senate 2 Trillion Stimulus Bill has a provision that precludes businesses that take loans from the government from paying a dividend during the loan and the 12 month period after the loan.  

So .... say if Delta Airlines has a loan (versus an outright bailout) ... no dividend?

If so, holy mackerel!  I doubt that Congress is fully aware of how many senior citizens count on those dividends and have set up their portfolios to be dividend-centric.   

I can see limiting buy-backs in that manner and I could see putting in a cap so that dividends are not increased.  But eliminating the dividend entirely?  That seems quite alarming to me and I'm more of a capital gains investor.  I can only imagine what those that have Dividend-yielding OEF and ETFs are thinking if this truly becomes law.  

ctyankee


I wholeheartedly agree with this, conceptually.  Why should government loans/grants to businesses be sent right back out to investors, in the form of diveys or buybacks, rather than staying within the business?  Nevertheless, Boeing has already suspended their dividend.  Delta and United don't pay a divey anyhow, and both American and Southwest are not considered great divey paying stocks, for income, for a retiree!  In fact, I don't think the airlines are considered great growth stocks either!  8-))


@ElLobo 

I edited my post to make the company generic.  However, Delta *did* pay a very strong dividend before it was suspended.  But, let me throw your logic back at you, if Delta is not a growth stock and can't pay a dividend during the loan and the year after the loan ... who is going to be an investor in Delta other than the government?  With the stock price in the toilet, who is going to give them a substantial line of credit?  What's next ... bailout plan #2?  Or is the government just going to own the airline industry or cut its losses, leaving us with fewer carriers (already a dangerous thing for consumer pricing issues)?  

The lack of dividends could result in throwing the baby out with the bathwater.  If you don't like the idea of some taxpayer money being used for dividends (that senior citizens count on) ... I hope you like the idea of *all* taxpayer money potentially wasted on a bailout with provisions that preclude it from being successful.   

ctyankee


60B bailout bill for airlines has many complex provisions for assistance to that will only be understood when treasury issues regulations implementing the conditions of eligibility. Bots Can’t make informed investment decisions based on headlines which is why it will be risky to invest in airlines. Secretary munchin said Recovery law is not a bail out and some money will have to be repaid. And bailout will not put fannies in the seats of airlines to restore them to profitability. Companies with cash on hand and good balance sheets e.g., Walmart, CVS will survive and dominate their sectors as the recovery takes effect.

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Re: Senate 2T Stimulus Bill - Dividend Concerns

 Hopefully, this will put an end to the thesis that dividends are safe and that the best strategy for retirees is to build a concentrated portfolio based on high yielding stocks and levered ETN's. The three most important words in investing are diversification, diversification, and diversification.

 I was looking forward to the reinvestment of my dividends at the end of March, taking advantage of the dip in prices.

 

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Re: Senate 2T Stimulus Bill - Dividend Concerns


@ElLobo wrote:

"I edited my post to make the company generic.  However, Delta *did* pay a very strong dividend before it was suspended.  But, let me throw your logic back at you, if Delta is not a growth stock and can't pay a dividend during the loan and the year after the loan ... who is going to be an investor in Delta other than the government?  With the stock price in the toilet, who is going to give them a substantial line of credit?  What's next ... bailout plan #2?  Or is the government just going to own the airline industry or cut its losses, leaving us with fewer carriers (already a dangerous thing for consumer pricing issues)?  

The lack of dividends could result in throwing the baby out with the bathwater.  If you don't like the idea of some taxpayer money being used for dividends (that senior citizens count on) ... I hope you like the idea of *all* taxpayer money potentially wasted on a bailout with provisions that preclude it from being successful."

Funds, especially index funds.  Individual income investors won't buy it.  Neither will growth investors!  About as generic as you can get!  8-))


@ElLobo 

Per your own analysis, growth funds won't want it.  Dividend funds won't want it.  The INDEX FUNDS that MATTER are Market Cap Weighted which currently provide .09% (.0009) of each dollar invested to Delta at present.  That's a single leaf blowing in the wind.    

ctyankee

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Re: Senate 2T Stimulus Bill - Dividend Concerns


@Bentley wrote:

 Hopefully, this will put an end to the thesis that dividends are safe and that the best strategy for retirees is to build a concentrated portfolio based on high yielding stocks and levered ETN's. The three most important words in investing are diversification, diversification, and diversification.

 I was looking forward to the reinvestment of my dividends at the end of March, taking advantage of the dip in prices.

 


Depends on what sectors an investor owns. utilities will still pay their dividends along with communications co such as T and VZ. TBTF banks such as JPM , BAC , GS, WFC will continue to pay their dividends because they are well capitalized. Same with pharma such as  BMY , MRK, JNJ. And even tech co such as, AAPL, MSFT, INTC pay dividends. Major oil co such as XOM and CVX will continue dividends because they have reserves which can be pumped at low cost and strong balance sheets.

No opinion on ETNs.

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Re: Senate 2T Stimulus Bill - Dividend Concerns

I'm in your camp, intruder. I still hold a number of stocks that have yet cut their dividends.

Not sure where Bentley is getting his dividends, but they have to be coming from some place. I wonder?

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Re: Senate 2T Stimulus Bill - Dividend Concerns


@outandabout wrote:

I'm in your camp, intruder. I still hold a number of stocks that have yet cut their dividends.

Not sure where Bentley is getting his dividends, but they have to be coming from some place. I wonder?


83% of SP 500 co pay dividends although that number will decline as Airlines who get fed loans stop dividends.

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Re: Senate 2T Stimulus Bill - Dividend Concerns

Granted, intruder, the SP 500 would be a source for dividends for a passive investor, but as you mentioned there are a number of stocks that have a history of dividend appreciation for those who invested in individual stocks or ETFs. 

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Re: Senate 2T Stimulus Bill - Dividend Concerns


@outandabout wrote:

Granted, intruder, the SP 500 would be a source for dividends for a passive investor, but as you mentioned there are a number of stocks that have a history of dividend appreciation for those who invested in individual stocks or ETFs. 


Except for a few stocks like VZ ,Given the economic chaos caused by the CV outbreak to the economy I am not counting on increases in Dividends in 2020,  

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Re: Senate 2T Stimulus Bill - Dividend Concerns


@Intruder wrote:

@outandabout wrote:

I'm in your camp, intruder. I still hold a number of stocks that have yet cut their dividends.

Not sure where Bentley is getting his dividends, but they have to be coming from some place. I wonder?


83% of SP 500 co pay dividends although that number will decline as Airlines who get fed loans stop dividends.


SPY pays a 1.9% 'market cap average' divey.  SDY (the 20 year divey aristrocrats found within the total stock market index, the S&P1500 above a certain minimum market cap) pays 2.78%.  SDYL, the 2X leveraged ETN that tracks SDY pays 6.91%.

One of those more than covers a real, inflation adjusted 4% rate of retirement withdrawal, going forward, with the least amount of risk, all things considered.  Only one of those has a decent chance of supporting a nominal 6.9% rate of retirement withdrawal, going forward.  Only one of those holds any airlines stocks or Boeing.

A 60 divey growth paying stock fund is more than diversified enough to handle most risks of a divey cut, going forward.  As of mid-Feb, 24 S&P500 companies announced divey cuts, about the same number as last year.  Last year, the S&P500 divey grew at an 8.37% annual rate, even with the divey cuts.  I would expect a flat divey growth rate for the index for 2020, at worst, but that's just me, I guess!

Just sayin'.

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Re: Senate 2T Stimulus Bill - Dividend Concerns

"Per your own analysis, growth funds won't want it.  Dividend funds won't want it.  The INDEX FUNDS that MATTER are Market Cap Weighted which currently provide .09% (.0009) of each dollar invested to Delta at present.  That's a single leaf blowing in the wind."

I absolutely agree.  Your question, however, was, who is going to be an investor in Delta other than the government?

 

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Re: Senate 2T Stimulus Bill - Dividend Concerns


@ElLobo wrote:

@Intruder wrote:

@outandabout wrote:

I'm in your camp, intruder. I still hold a number of stocks that have yet cut their dividends.

Not sure where Bentley is getting his dividends, but they have to be coming from some place. I wonder?


83% of SP 500 co pay dividends although that number will decline as Airlines who get fed loans stop dividends.


SPY pays a 1.9% 'market cap average' divey.  SDY (the 20 year divey aristrocrats found within the total stock market index, the S&P1500 above a certain minimum market cap) pays 2.78%.  SDYL, the 2X leveraged ETN that tracks SDY pays 6.91%.

One of those more than covers a real, inflation adjusted 4% rate of retirement withdrawal, going forward, with the least amount of risk, all things considered.  Only one of those has a decent chance of supporting a nominal 6.9% rate of retirement withdrawal, going forward.  Only one of those holds any airlines stocks or Boeing.

A 60 divey growth paying stock fund is more than diversified enough to handle most risks of a divey cut, going forward.  As of mid-Feb, 24 S&P500 companies announced divey cuts, about the same number as last year.  Last year, the S&P500 divey grew at an 8.37% annual rate, even with the divey cuts.  I would expect a flat divey growth rate for the index for 2020, at worst, but that's just me, I guess!

Just sayin'.


@ElLobo 

Just remember when you measure it for full 2020 results, that you INCLUDE the companies that got tossed out of the Dividend Aristocrats underlying index.  Otherwise, you're just kidding yourself.  Per the Internet:  

2009 - The list declined from 52 companies in 2008 to 43 companies in 2009, as nine companies were delisted or cut their dividend payouts; some of them due to the 2008 financial crisis. They were: Anheuser Busch (BUD), Bank of America (BAC), Comerica (CMA), Fifth Third Bank (FITB), Keycorp (KEY), Progressive Corp (PGR), Regions Financial (RF), Synovus Financial (SNV), and Wm. Wrigley (WW), which was acquired by Mars.

ctyankee

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Re: Senate 2T Stimulus Bill - Dividend Concerns

Since no one has a list of which companies are getting loans or grants and which ones may get them in the next traunch, I don't think we can say what companies will keep paying dividends at this point.

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Re: Senate 2T Stimulus Bill - Dividend Concerns

"Just remember when you measure it for full 2020 results, that you INCLUDE the companies that got tossed out of the Dividend Aristocrats underlying index.  Otherwise, you're just kidding yourself.  Per the Internet:  

2009 - The list declined from 52 companies in 2008 to 43 companies in 2009, as nine companies were delisted or cut their dividend payouts; some of them due to the 2008 financial crisis. They were: Anheuser Busch (BUD), Bank of America (BAC), Comerica (CMA), Fifth Third Bank (FITB), Keycorp (KEY), Progressive Corp (PGR), Regions Financial (RF), Synovus Financial (SNV), and Wm. Wrigley (WW), which was acquired by Mars."

Absolutely.  The list of the 866 current divey aristrocrats, as of the end of January, is published monthly.  The monthly list goes back 10 years, and you can actually track which companies dropped out, which came in, and way more financial information than anyone but a divey wonk would want to know.  That list starts at 5 years of continuously increasing diveys and goes up from there.

The SDY ETF, by the way, has to account for those changes, but the ETF distribution itself may go up, or down, whenever a divey is cut and a company is taken out of the list.  Ditto for a company added to the list, at 5 years of continuous growth.  Think of the mechanics involved.  A company cuts, or stalls, its divey so it's removed from the index.  SDY, in turn, has to sell that stock and spread the proceeds from the sale among the remaining stocks, consistent with their NEW aristrocrat weightings.  That 'new' cash, in turns, results in a bit more, or less, distribution cash over or below that generated by the company taken out!  So the actual distribution for SDY is quite 'volatile' in the sense that it represents all of these pertubations over time..

In January, there was a company known to some of you, Tangier Factory Outlets, SKT, which has continuously raised its REIT based divey for the last 26 years, yet it was taken out of the SDY (but not the index.)  The reason is that the share price had tanked so much to a low not seen since Y2K, which resulted in its market cap going below the minimum required for SDY!!!

I never kid myself.  I understand divey growth investing.  Been doing it for 2 decades now!

So let me ask YOU a questions.  With SDY, given all of the above, yielding almost 1% more than SPY, why would anyone, even an indexer, hold SPY rather than SDY?

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