As the response to contain COVID-19 as best as possible continues with trying to balance the economic and mental health aspect that the virus is having on just about every American, I thought it would be helpful to examine the impact that a generational economic downturn has had on my portfolio, especially considering this will be the first recession that my 51 whole share stock portfolio has endured since I began investing in September 2017.
Delving right into the impact on dividend announcements, and particularly on dividend cuts/suspensions, my portfolio has held relatively strong to date, with the following 2 dividend/distribution cuts and a dividend suspension.
Dividend Cut: Royal Dutch Shell (RDS.B)
In a sector that is as dependent on the global economy as that of the energy sector, it was only somewhat surprising that the supermajor Shell opted to cut its dividend for the first time since World War II.
After all, the Energy Information Administration or EIA estimates that global petroleum and liquid fuels consumption averaged 94.1 million barrels per day in the first quarter of 2020, which was a decline of 5.8 million bpd from the same period in 2019.
As I discussed in my recent Seeking Alpha article on Energy Transfer, oil faces two key challenges in the months ahead, which is the notable decline in energy demand coupled with the excess supply of oil.
EIA predicts that these two factors will weigh heavily on the price of WTI crude this year, with WTI averaging $30. Fortunately, a recovery is expected next year, with prices expected to average $43 as energy demand recovers and excess supply of oil is depleted.
Keeping all of this in mind and the fact that Shell seeks to minimize the burden of the pandemic on its balance sheet, it makes sense that Shell made the decision to slash its quarterly dividend by 66.0%, from $0.94/share ($0.47/share, but each American Depository Shares counts as 2 shares) to $0.32/share.
As a result of Shell's decision to cut its dividend, my annual forward dividend income declined by $22.32 across my 9 shares.
Distribution Cut: EQM Midstream Partners (EQM)
Unlike Shell and the dividend announcement that was slightly surprising, it wasn't at all surprising that EQM Midstream Partners announced a 66.6% cut in its quarterly distribution, from $1.16/unit to $0.3875/unit.
It was just this past February that EQM announced that it would be acquired by Equitrans Midstream (ETRN) and that a significant distribution cut would be in the works.
Given that EQM is doing its best to deleverage and to increase the coverage of its distribution as it attempts to get its Mountain Valley Pipeline project into service by the end of this year, it makes sense that the company would be cutting its distribution at this point to improve its sustainability as a company going forward and if/when MVP is complete, EQM will be flush with cash to deleverage and raise its distribution rapidly.
Across my 4 units of EQM, my annual forward distributions dropped by $12.36.
Dividend Suspension: Tanger Factory Outlet Centers (SKT)
The dividend suspension in my portfolio came last week, when Tanger Factor Outlet Centers announced that it would be suspending its quarterly dividend of $0.3575/share for the foreseeable future in order to preserve liquidity during the COVID-19 pandemic.
SKT also added that the company sees sufficient liquidity for 2 years, which is an encouraging sign as the tenants of SKT and their customers gradually shift back to the experience-centric mindset, which brought most of them to malls in the first place.
My annual forward dividends were reduced by $15.73 across my 11 shares of SKT as a result of the company's dividend suspension.
While it's still too early to tell whether or not the worst is behind us, the $50.41 reduction in my annual forward dividends/distributions thus far (although really $38.05 when excluding EQM as that distribution cut was going to happen regardless of what COVID-19 eventually did to the global economy) represents only 4% of my annual forward dividends of $1,201.
Given the magnitude of the COVID-19 pandemic and the unprecedented shutdown of significant portions of the global economy, I am relatively impressed with how my dividend portfolio has held up to date, though I wouldn't be surprised to see another cut or two in the weeks/months ahead.
How has your portfolio held up in the unprecedented global economic response to COVID-19?
Has it been better than expected given the circumstances or worse than you expected?
Has this event challenged or reinforced your belief that a dividend growth investment strategy is viable regardless of economic conditions?
As always, I welcome and appreciate any thoughts that you leave in the comment section below. Thanks for reading!
Basically, my situation is not as bad as I expected. I even recently was able to purchase: CHD, XEL. I wish you all good luck!
Thanks for the comment. Congrats on your purchases of CHD and XEL as those are both excellent companies that I believe will do well in the years ahead.