After struggling to raise money in the spring, some large US companies that have stopped paying dividends are reversing their decision, a sign that their leaders believe the worst of the crisis is behind them.
Earlier this year, when much of the country’s economy stalled in the first waves of the coronavirus pandemic, companies withdrew money from credit lines, stopped buying shares and stopped paying dividends amid uncertainty. The public health situation continues, but many companies ̵
“Multinational companies are starting to die out,” said Mark Zandi, chief economist at Moody’s Analytics. “The resumption of corporate dividend payments is an encouraging sign that executives believe the pandemic will soon be behind us.”
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Kohl’s Corp. was one of 42 companies in the S&P 500 index that stopped its dividend to keep cash after the arrival of the Covid-19 virus. In September, CFO Jill Tim said the retailer would protect its cash reserves due to continuing uncertainty. “As we see stabilization, we will return to paying dividends,” she told an investment conference.
Her tone changed last week when the department store chain reported third-quarter results that showed her business was recovering from reopening. Revenue fell 14% from a 23% drop in the previous quarter. Kohl’s said it would resume its dividend in the first half of 2021.
“We have shown progressive improvement and stability in the business,” Ms. Tim said during a conference call.
The company’s decision to pay a dividend usually depends on the comfort of management with the availability of sufficient cash flow for other purposes – subsequent payment – along with the ability to access other funds. The commitment is to make regular payments to shareholders and suspension is often the last resort in a crisis.
Of the 42 companies in the S&P 500 index that suspended their dividends earlier this year, six resumed paying their dividends, and several more were scheduled to do so, according to the S&P Dow Jones indices.
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Despite the economic shocks this year, many large companies have successfully turned to the pandemic, and some are taking advantage by taking market share from smaller competition. “This may not be a barometer of the strength of the wider economy,” Mr Zandi said, referring to renewed dividend payments.
Oil maker Marathon Oil Corp. stopped paying dividends in May after oil prices fell due to declining gasoline and jet fuel consumption as millions of people worked from home and avoided driving and flying. Last month, the company declared a dividend to be paid in December.
“We believe we have successfully reoriented our company to success in a lower, more volatile commodity price environment,” said then CEO Lee Tillman.
Other companies that are resuming their dividends include Darden Restaurants Inc., an operator of Olive Garden, LongHorn Steakhouse and other chains; cosmetic company Estée Lauder Cos .; and wood giant Weyerhaeuser Co.
The clothing chain Gap Inc. suspended its dividend in March, while failing to pay rents, issue debts and withdraw money from its credit line. In late October, CFO Katrina O’Connell said the company would “return to paying a consistent and competitive dividend” in early 2021.
The CEO of General Motors Co. Mary Barra told investors in early November that the company would seek to resume its dividend, suspended in April, around mid-2021, if the current recovery continues for the carmaker. In 2019, GM paid more than $ 2.3 billion in dividends to shareholders.
Louis Navelier, chief investment officer of Navellier & Associates Inc.’s cash manager, said the companies were working to free up cash flow in the pandemic and saw more companies resume their dividends. He expects investors to focus more on shares that pay dividends, as interest rates will remain low for a long time. “I think dividends will become more important and more companies will do it,” he said.
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Some companies do more than just pay dividends.
The retailer TJX Cos. He said last week that he would resume his dividend, but by 13% higher than the last one paid in March, citing his cash flow and $ 10.6 billion in cash on his balance sheet. The company reopened most of the TJ Maxx, Marshalls and HomeGoods stores it had closed in the spring.
“We are very committed to the long term because it feels significantly better than in the beginning [the third quarter] when we didn’t know where it was all going, “CEO Ernie Herman said during a conference call.
One of the largest national hospital chains, Universal Health Systems Inc., said on Thursday that it was not yet ready to resume dividend payments, largely due to the recent jump in cases across the country. If the company manages to cope with another difficult period of Covid-19, CFO Steve Filton said during a conference call, he will feel more comfortable paying shareholders’ dividends and repurchasing shares.
“We’d like to move over the next few months,” Mr. Filton said, “and then maybe sometime in February to take stock of where we are.”