'A Big, Once-Reliable Source of Investor Cash Is Drying Up' diff viewer (6/7)

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A Big, Once-Reliable Source of Investor Cash Is Drying Up	A Big, Once-Reliable Source of Investor Cash Is Drying Up
2020-06-09 02:59:20 UTC	2020-06-10 03:34:20 UTC (1 day later)
The swings of the stock market have been painful enough lately. But on top of the price declines that have kept many investors awake at night, another insult is on the way: Stocks will be providing much less income.	The swings of the stock market have been painful enough lately. But on top of the price declines that have kept many investors awake at night, another insult is on the way: Stocks will be providing much less income.
That money typically comes in the form of quarterly dividends, which usually increase steadily each year. In benign periods for the stock market, it can be easy to believe that this swelling torrent of cash is as dependable as the rotation of the Earth.	That money typically comes in the form of quarterly dividends, which usually increase steadily each year. In benign periods for the stock market, it can be easy to believe that this swelling torrent of cash is as dependable as the rotation of the Earth.
But the reality is that dividends are paid at the discretion of corporations. And as companies struggle to conserve enough cash to keep themselves going in the coronavirus recession, one of the things they are cutting is their dividend.	But the reality is that dividends are paid at the discretion of corporations. And as companies struggle to conserve enough cash to keep themselves going in the coronavirus recession, one of the things they are cutting is their dividend.
“In a recession, companies curl up into a fetal position and they cut employment, production and inventories,” said Edward Yardeni, the independent market researcher. “They stop buying back their own stock, and then, if they are still bleeding cash, they cut dividends.”	“In a recession, companies curl up into a fetal position and they cut employment, production and inventories,” said Edward Yardeni, the independent market researcher. “They stop buying back their own stock, and then, if they are still bleeding cash, they cut dividends.”
These kinds of cuts can be devastating if you are accustomed to living off the dividends. Research by behavioral economists like Richard Thaler, the Nobel laureate, found that many people have used simple rules, or heuristics, to guide their behavior in benign ways. One is to “never to touch the principal” and “to live off dividends and interest,” said Jay Ritter, a finance professor at the University of Florida.	These kinds of cuts can be devastating if you are accustomed to living off the dividends. Research by behavioral economists like Richard Thaler, the Nobel laureate, found that many people have used simple rules, or heuristics, to guide their behavior in benign ways. One is to “never to touch the principal” and “to live off dividends and interest,” said Jay Ritter, a finance professor at the University of Florida.
But while the interest on bonds must be paid as long as a corporation is a going concern, the dividends may rise, fall or be eliminated, depending on the needs and preferences of corporate management and the prevailing political climate. That, unfortunately, only becomes clear to many people when their dividends have been cut.	But while the interest on bonds must be paid as long as a corporation is a going concern, the dividends may rise, fall or be eliminated, depending on the needs and preferences of corporate management and the prevailing political climate. That, unfortunately, only becomes clear to many people when their dividends have been cut.
“What’s happening to dividends is rough for people who rely on them, but the issue is much less visible than it was a few decades ago,” Mr. Thaler, who teaches at the University of Chicago, said in an interview.	“What’s happening to dividends is rough for people who rely on them, but the issue is much less visible than it was a few decades ago,” Mr. Thaler, who teaches at the University of Chicago, said in an interview.
From 1926 through March 2020, dividends accounted for 40.2 percent of the total return of the S&P 500. But because direct ownership of stock has been declining — while indirect stock ownership, through mutual funds and pension funds, has risen — dividend payments are hidden from view. In addition, since the early 1980s, stock buybacks have increasingly become a conduit for channeling money into the hands of investors, reducing the role of dividends.	From 1926 through March 2020, dividends accounted for 40.2 percent of the total return of the S&P 500. But because direct ownership of stock has been declining — while indirect stock ownership, through mutual funds and pension funds, has risen — dividend payments are hidden from view. In addition, since the early 1980s, stock buybacks have increasingly become a conduit for channeling money into the hands of investors, reducing the role of dividends.
Even so, stock dividends, which flow into mutual funds and portfolios and are reinvested, have continued to play a large role in investor returns over extended periods, said Jeremy Siegel, the University of Pennsylvania economist. “Compounded dividends are amazingly powerful, even if people don’t realize it,” he said.	Even so, stock dividends, which flow into mutual funds and portfolios and are reinvested, have continued to play a large role in investor returns over extended periods, said Jeremy Siegel, the University of Pennsylvania economist. “Compounded dividends are amazingly powerful, even if people don’t realize it,” he said.
Indeed, over the 30 years through March, Bloomberg data shows, if you held an S&P 500 index fund, nearly half your total return would have derived from the compounding effect of reinvested dividends. Based just on price appreciation, the index rose 683 percent in that period; including reinvested dividends, it returned 1,330 percent.	Indeed, over the 30 years through March, Bloomberg data shows, if you held an S&P 500 index fund, nearly half your total return would have derived from the compounding effect of reinvested dividends. Based just on price appreciation, the index rose 683 percent in that period; including reinvested dividends, it returned 1,330 percent.
The flip side of that compounding magic is that dividend cuts will reduce your portfolio returns — or deepen the agony when stocks decline.	The flip side of that compounding magic is that dividend cuts will reduce your portfolio returns — or deepen the agony when stocks decline.
During the last financial crisis, for example, from 2007 to 2009, companies in the S&P 500 slashed dividends by a total of 29 percent, Mr. Yardeni estimates. The coronavirus recession is likely to result in dividend cuts of around the same magnitude, analysts say; Goldman Sachs last week put the projected cuts at 25 percent. Mr. Yardeni said the cuts could be even larger than those of that crisis.	During the last financial crisis, for example, from 2007 to 2009, companies in the S&P 500 slashed dividends by a total of 29 percent, Mr. Yardeni estimates. The coronavirus recession is likely to result in dividend cuts of around the same magnitude, analysts say; Goldman Sachs last week put the projected cuts at 25 percent. Mr. Yardeni said the cuts could be even larger than those of that crisis.
This is no trivial matter. In the S&P 500 alone, annual dividends amounted to almost $500 billion in the 12 months through March. That means that investors could collectively lose between $100 billion and $150 billion in dividend cuts in this recession, on top of their losses from stock price declines.	This is no trivial matter. In the S&P 500 alone, annual dividends amounted to almost $500 billion in the 12 months through March. That means that investors could collectively lose between $100 billion and $150 billion in dividend cuts in this recession, on top of their losses from stock price declines.
The cuts are only beginning, but a formidable group of publicly traded companies have already announced that they will either reduce or suspend dividends. They include:	The cuts are only beginning, but a formidable group of publicly traded companies have already announced that they will either reduce or suspend dividends. They include:
Restaurant chains like Darden Restaurants, Bloomin’ Brands and Texas Roadhouse.	Restaurant chains like Darden Restaurants, Bloomin’ Brands and Texas Roadhouse.
Travel-related companies like Marriott International, Sabre, Delta Air Lines, Alaska Air, Boeing and Carnival.	Travel-related companies like Marriott International, Sabre, Delta Air Lines, Alaska Air, Boeing and Carnival.
Retailers like Macy’s, Nordstrom and Coach.	Retailers like Macy’s, Nordstrom and Coach.
Energy companies like Apache, Occidental Petroleum, Targa Resources and DCP Midstream.	Energy companies like Apache, Occidental Petroleum, Targa Resources and DCP Midstream.
And a smattering of others, including Ford Motor and the mining company Freeport-McMoRan.	And a smattering of others, including Ford Motor and the mining company Freeport-McMoRan.
Conspicuously absent from that list, at least so far, are big banks like Bank of America, Citi, Wells Fargo and JPMorgan Chase. While banks have announced that they are voluntarily stopping stock buybacks — which were a pillar of the long bull market that ended this year — they have managed to hold the line on dividends, which they reduced or suspended during the financial crisis.	Conspicuously absent from that list, at least so far, are big banks like Bank of America, Citi, Wells Fargo and JPMorgan Chase. While banks have announced that they are voluntarily stopping stock buybacks — which were a pillar of the long bull market that ended this year — they have managed to hold the line on dividends, which they reduced or suspended during the financial crisis.
Financial service companies accounted for 20.5 percent of all S&P 500 dividends in 2008 but only 9 percent by 2010, according to data provided by Howard Silverblatt, senior index analyst for S&P Dow Jones Indices. By April 1 of this year, though, financial services companies accounted for 14.6 percent of all S&P 500 dividends.	Financial service companies accounted for 20.5 percent of all S&P 500 dividends in 2008 but only 9 percent by 2010, according to data provided by Howard Silverblatt, senior index analyst for S&P Dow Jones Indices. By April 1 of this year, though, financial services companies accounted for 14.6 percent of all S&P 500 dividends.
Yet the Federal Reserve has, until now, allowed the banks to continue paying dividends, despite being major, if indirect, beneficiaries of government bailouts of corporate America. Direct beneficiaries — companies that receive cash infusions from the Federal Reserve or the government — are coming under considerable pressure to avoid disbursing funds to shareholders, increasing the likelihood of further dividend cuts.	Yet the Federal Reserve has, until now, allowed the banks to continue paying dividends, despite being major, if indirect, beneficiaries of government bailouts of corporate America. Direct beneficiaries — companies that receive cash infusions from the Federal Reserve or the government — are coming under considerable pressure to avoid disbursing funds to shareholders, increasing the likelihood of further dividend cuts.
Despite dividends’ importance for many investors, and their hallowed status in traditional security analysis — Benjamin Graham, the guru of value investing, gave dividends great importance in evaluating the worthiness of companies — they are not universally regarded as fundamentally important in corporate finance.	Despite dividends’ importance for many investors, and their hallowed status in traditional security analysis — Benjamin Graham, the guru of value investing, gave dividends great importance in evaluating the worthiness of companies — they are not universally regarded as fundamentally important in corporate finance.
Updated June 5, 2020	Updated June 5, 2020
	So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement.
A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study.	A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study.
The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April.	The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April.
Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission.	Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission.
Exercise researchers and physicians have some blunt advice for those of us aiming to return to regular exercise now: Start slowly and then rev up your workouts, also slowly. American adults tended to be about 12 percent less active after the stay-at-home mandates began in March than they were in January. But there are steps you can take to ease your way back into regular exercise safely. First, “start at no more than 50 percent of the exercise you were doing before Covid,” says Dr. Monica Rho, the chief of musculoskeletal medicine at the Shirley Ryan AbilityLab in Chicago. Thread in some preparatory squats, too, she advises. “When you haven’t been exercising, you lose muscle mass.” Expect some muscle twinges after these preliminary, post-lockdown sessions, especially a day or two later. But sudden or increasing pain during exercise is a clarion call to stop and return home.	Exercise researchers and physicians have some blunt advice for those of us aiming to return to regular exercise now: Start slowly and then rev up your workouts, also slowly. American adults tended to be about 12 percent less active after the stay-at-home mandates began in March than they were in January. But there are steps you can take to ease your way back into regular exercise safely. First, “start at no more than 50 percent of the exercise you were doing before Covid,” says Dr. Monica Rho, the chief of musculoskeletal medicine at the Shirley Ryan AbilityLab in Chicago. Thread in some preparatory squats, too, she advises. “When you haven’t been exercising, you lose muscle mass.” Expect some muscle twinges after these preliminary, post-lockdown sessions, especially a day or two later. But sudden or increasing pain during exercise is a clarion call to stop and return home.
States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people.	States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people.
Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.	Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.
Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.	Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.
If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)	If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)
Taking one’s temperature to look for signs of fever is not as easy as it sounds, as “normal” temperature numbers can vary, but generally, keep an eye out for a temperature of 100.5 degrees Fahrenheit or higher. If you don’t have a thermometer (they can be pricey these days), there are other ways to figure out if you have a fever, or are at risk of Covid-19 complications.	Taking one’s temperature to look for signs of fever is not as easy as it sounds, as “normal” temperature numbers can vary, but generally, keep an eye out for a temperature of 100.5 degrees Fahrenheit or higher. If you don’t have a thermometer (they can be pricey these days), there are other ways to figure out if you have a fever, or are at risk of Covid-19 complications.
The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing.	The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing.
If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.	If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.
If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested.	If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested.
In an influential 1961 paper, Merton Miller and Franco Modigliani, two Nobel laureates in economics, said that dividends were essentially irrelevant. Corporate earnings and cash flow are critically important, they said. But whether investors reap those rewards through dividends, stock price appreciation or buybacks is economically insignificant, their work suggested.	In an influential 1961 paper, Merton Miller and Franco Modigliani, two Nobel laureates in economics, said that dividends were essentially irrelevant. Corporate earnings and cash flow are critically important, they said. But whether investors reap those rewards through dividends, stock price appreciation or buybacks is economically insignificant, their work suggested.