Could Investors Have Avoided the 2020 Dividend Disaster?

Income investors had a torrid time in 2020, but high-quality, financially healthy companies were the most likely to sustain payouts

Dan Lefkovitz 16 March, 2021 | 9:32AM
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"The world has seriously changed over the last few months," said Ben van Beurden, CEO of Royal Dutch Shell (RDSA), in an April 2020 statement announcing that the integrated oil and gas giant was reducing its dividend for the first time since World War II. "The global economic decline and uncertain outlook may have significant impacts on our profitability, cashflow and balance sheet," said Van Beurden as he predicted that Shell would "reinforce our resilience, preserve the strength of our balance sheet and support value creation in the long term" by reducing its quarterly dividend by 66%.

Shell was hardly the only company whose dividend fell victim to a "seriously changed" world. The pandemic-driven economic slowdown triggered thousands of companies worldwide to reduce, suspend, or eliminate shareholder payouts. For investors who depend on dividends for income, cuts represented a cashflow interruption. And because they reflected larger business challenges, dividend cuts were typically accompanied by share price declines. Shell lost roughly 40% of its market value in 2020.

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Dan Lefkovitz

Dan Lefkovitz  is strategist for Morningstar’s Indexes group