By Thomas Gryta
After scrambling to hoard cash in the spring, some large U.S.
companies that halted their dividend payments 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 shut down
in the first waves of the coronavirus pandemic, companies withdrew
cash from credit lines, stopped repurchasing stock and halted
dividend payments amid the uncertainty. The public health plight
continues, but many businesses -- from factories to law firms --
have learned how to operate during the pandemic. Retailers,
fast-food restaurants and car makers are doing better, and there is
hope among executives that any new restrictions to battle the
latest U.S. surge in cases won't be as severe.
"Multinationals are beginning to exhale," said Mark Zandi, chief
economist at Moody's Analytics. "The resumption of corporate
dividend payments is an encouraging sign that executives believe
that the pandemic will soon be behind us."
Kohl's Corp. was one of the 42 companies in the S&P 500
index that suspended its dividend to preserve cash after the
Covid-19 virus arrived. In September, finance chief Jill Timm said
the retailer would protect its cash reserves because of continued
uncertainty. "As we see stabilization, we'll move back into paying
a dividend," she said at an investor conference.
Her tone changed last week when the department store chain
reported third-quarter results that showed its business recovering
after reopening locations. Revenue fell 14%, compared with 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. Timm said on a conference call.
A company's decision to pay a dividend typically depends on
management's comfort with having enough cash flow for other uses --
post-payment -- along with its ability to access other cash. It is
a commitment to make regular payouts to shareholders and suspending
it is frequently a last resort in a crisis.
Of the 42 companies in the S&P 500 index that suspended
their dividend earlier this year, six have resumed paying their
dividend and several more have given a timeline to do the same,
according to S&P Dow Jones Indices.
Despite the economic shocks this year, many large companies have
successfully navigated the pandemic, and some are benefiting by
taking market share from smaller competition. "It may not be a
barometer of the strength of the broader economy," Mr. Zandi said,
referring to renewed dividend payments.
Oil producer Marathon Oil Corp. halted its dividend payments in
May after oil prices dropped because of a decline in consumption of
gasoline and jet fuel as millions of people worked from home and
avoided driving and flying. Last month, the company declared a
dividend for payment in December.
"We believe we have successfully repositioned our company for
success in a lower, more volatile commodity price environment,"
Chief Executive Officer Lee Tillman said at the time.
Other companies resuming their dividends include Darden
Restaurants Inc., operator of Olive Garden, LongHorn Steakhouse and
other chains; cosmetics company Estée Lauder Cos.; and timber giant
Apparel chain Gap Inc. halted its dividend in March while also
skipping rent payments, issuing debt and drawing cash out of its
credit line. In late October, finance chief Katrina O'Connell said
the company would be "returning to paying a consistent and
competitive dividend" in early 2021.
General Motors Co. CEO Mary Barra told investors in early
November that the company would aim to resume its dividend,
suspended in April, around mid-2021 if the current recovery
continues for the auto maker. In 2019, GM paid more than $2.3
billion in shareholder dividends.
Louis Navellier, chief investment officer of money manager
Navellier & Associates Inc., said companies have been working
to free up cash flow in the pandemic, and he sees more companies
resuming their dividends. He expects investors to focus more on
dividend-paying stocks because interest rates will remain low for a
prolonged period. "I think dividends will become more important,
and more companies will do it," he said.
Some companies are doing more than just resuming dividends.
Retailer TJX Cos. said last week that it would resume its
dividend, but at a 13% higher rate than it last paid in March,
citing its cash flow and $10.6 billion in cash on its balance
sheet. The company has reopened most of the TJ Maxx, Marshalls and
HomeGoods stores it had closed in the spring.
"We are very bullish on the longer-term outlook because that
feels significantly better than it did at the beginning of [the
third quarter] when we didn't know where all of this was heading,"
CEO Ernie Herrman said on a conference call.
One of the nation's largest hospital chains, Universal Health
Systems Inc., said Thursday that it wasn't quite yet ready to
resume paying a dividend, largely because of the recent surge in
cases across the country. If the company can manage through another
difficult Covid-19 period, finance chief Steve Filton said on a
conference call, it would feel more comfortable paying out cash to
shareholders in dividends and share repurchases.
"We'd like to get through the next couple of months," Mr. Filton
said, "and then maybe sometime in February, take stock of where we
Write to Thomas Gryta at firstname.lastname@example.org
(END) Dow Jones Newswires
November 22, 2020 05:44 ET (10:44 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.