Unexpectedly Intriguing!
July 2, 2019

June 2019 marked the end of a mixed quarter for dividend paying firms in the U.S. stock market in 2019-Q2, where the quarter featured both fewer dividend increases (bad) and fewer dividend cuts (good) than in the previous month and quarter.

The following chart visualizes the number of dividend increases and decreases in each month from January 2004 through June 2019.

Number of Public U.S. Companies Posting Dividend Cuts Each Month, January 2004 through June 2019

Standard and Poor reported the month's and quarter's metadata for dividends in the U.S. stock market:

  • In June 2019, 3,961 U.S. firms declared dividends, an increase of 32 over the 3,929 recorded in May 2019. That figure is also down by 118 from June 2018's total of 4,079.
  • 29 U.S. firms announced they would pay a special (or extra) dividend to their shareholders in June 2019, a decrease of 11 from the number recorded in May 2019 and a an increase of 4 over the total recorded in June 2018.
  • 70 U.S. firms announced they would boost cash dividend payments to shareholders in June 2019, a decrease of 92 from the 162 recorded in May 2019, and a decrease of 22 from the 92 dividend rises declared back in June 2018.
  • A total of 14 publicly traded companies cut their dividends in June 2019, a decline of 2 from the 16 recorded in May 2019 and also a decrease of 28 from the 42 recorded in June 2018.
  • 1 U.S. firm omitted paying their dividends in June 2019, the same as the number recorded in May 2019. That figure is also a decrease of 2 from the total of 3 firms that omitted paying dividends back in June 2018.

For the second calendar quarter of 2019 ending on Friday, 28 June 2019, Standard and Poor tallied the following numbers for dividend rises and reductions:

  • 2019-Q2 saw 389 firms increase dividends, down from 660 in 2019-Q1, and also down from 463 back in 2018-Q2.
  • 59 firms announced they would lower their dividends in 2019-Q2, down from 103 in the previous quarter, and down from 81 firms in 2018-Q2.

The combination of fewer quarter-over-quarter and year-over-year dividend increases and dividend decreases represents a mixed outcome for the U.S. stock market. What it indicates is that the market went through a rough patch in late 2018/early 2019, which depressed the number of dividend increases in the just ended quarter of 2019-Q2, even though fewer companies were distressed enough to have to announce new dividend cuts.

That's particularly true for firms in the oil and gas industry, where falling prices led to falling revenues and profits during that time. Since then, increased geopolitical concerns have boosted oil and gas prices, but not so strongly that these firms are boosting their dividend payouts, mainly as global demand has decreased. The oil and gas industry will be an important sector to watch during 2019-Q3.

Likewise, financial firms, including Real Estate Investment Trusts (REITs), will also be a key industry to monitor in the months ahead because of the negative influence of the Fed's latest series of rate hikes, which have negatively impacted interest rate-sensitive firms in this sector. Because short term rates remain elevated, even as longer term rates have fallen with slowing economies around the world, this sector accounts for a significant portion of distressed firms that have announced dividend cuts in recent months.

Right now, investors expect the U.S. Federal Reserve will be cutting short term rates at least three times during the next three quarters to mitigate the problems its series of rate hikes combined with its quantitative tightening policies have created. We'll find out in the months ahead whether they acted either quickly enough or decisively enough to reverse the problems caused by their policies in the markets.

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