2020 hasn’t been kind to income investors. Global bond yields are at all-time lows and companies have spent the past few months reducing, suspending, or outright ending their dividend payments.
But a new analysis from CFRA shows that the picture is a little brighter than investors may realize, and suggests some ways to pick up a little extra income.
“In the first half of 2020, 164 S&P 500 member firms either increased or initiated a dividend (a favorable dividend action), compared to 62 such companies that had negative actions,” wrote Todd Rosenbluth, CFRA’s head of mutual fund and exchange-traded fund research.
Put another way, Rosenbluth wrote, 73% of all dividend actions in the first half of the year were favorable to investors.
It’s only fair to note, as Rosenbluth does, that companies in the S&P 500 SPX, +0.86% index are among the most widely-held stocks, in part because they may be seen as safer: they “tend to have relatively strong balance sheets as well as recurring cash flow to support consistent dividend payments,” in his words.
As might be expected, companies outside of the S&P 500 haven’t fared as well through the COVID-19 crisis and the collapse in the oil markets this spring. In the second quarter, Rosenbluth’s analysis shows, 244 companies, regardless of index representation, increased dividends, down 50% from the same period in 2019. Some 639 companies cut or eliminated dividends — nine times as many as last year.
| Positive dividend actions for selected S&P 500 sectors | |
| Utilities | 94% |
| Financials | 91% |
| Health Care | 89% |
| Information Technology | 82% |
| Industrials | 77% |
| Energy | 55% |
| Consumer Discretionary | 39% |
| Source: CFRA analysis | |
For investors, one takeaway may be that ETFs can offer some protection against negative dividend actions, and a way to take advantage of any upside moves. Rosenbluth offers this example: The ProShares S&P 500 Dividend Aristocrats ETF NOBL, +1.12% has 27% of its portfolio allocated to the Industrials sector, where 77% of all dividend actions were positive — as shown in the chart above — and only 10% of its holdings in Consumer Discretionary, where only 39% of such actions were positive.
In the year to date, the fund’s total return is -9.10%, compared to a 2% increase for the broader MSCI USA Large-Cap Index, according to FactSet data. Over the past 12 months, the fund has yielded 2.3%. During that time, the yield on the 10-year US Treasury note TMUBMUSD10Y, 0.642% has rarely topped 2%.
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