Several companies cut or suspended their dividend in early 2020 amid the covid-19 impact on the economy. Should you keep your shares or not? This is the answer we will give you according to our dividend growth investing model. Some deserve to be kept even after a cut, but be prepare to be ruthless against most dividend cutters.
Dividend Cut & Suspension List
In this new section, we will track to the best of our knowledge all the dividend cuts and suspensions announced by companies we follow during the covid-19 crisis. This is not a complete list as we wanted to provide additional comments on most companies listed below. We will also tell you if we consider the company a “hold” or a “sell” depending on the reason why it cut/suspended its dividend.
|Company Name||Ticker||Cut/Suspension||Hold / Sell|
|Vermilion Energy||VET.TO||83% cut||SELL|
|Crescent Point Energy||CPG.TO||75% cut||SELL|
|Inter Pipeline||IPL.TO||72% cut||SELL|
|NFI Group||NFI.TO||50% cut||HOLD|
|Whitecap Resources||WCP.TO||50% cut||SELL|
|Chemtrade Logistics||CHE.UN.TO||50% cut||SELL|
|Diversified Royalty||DIV.TO||15% cut||SELL|
|Peyto Exploration||PEY.TO||83% cut||SELL|
|Pizza Pizza||PZA.UN.TO||30% cut||SELL|
|Keg Royalties||KEG.UN.TO||63% cut||SELL|
|Ag Growth International||AFN.TO||75% cut||SELL|
Additional thoughts for each dividend cutter
VET posted a disastrous quarter and blame the virus for the dividend cut! The company says it cut the dividend in response to “weakness in commodity prices and reduced global economic prospects following the outbreak of the novel coronavirus.” Q4 fund flows from operations totaled $216M, in line with the previous quarter despite a significant inventory build in Australia, while full-year FFO hit a record $908M, up 8% Y/Y. Q4 production rose 1% Q/Q to 97,875 boe/day, and full-year output increased 15% to a record 100,357 boe/day, reflecting a full-year contribution from assets acquired in 2018 and organic growth from the Netherlands, Australia and the U.S.
Crescent Point Energy
CEO can say pretty much whatever he wants, it’s too late to change our mind. With the latest oil bust in early March, we don’t see how CPG can recover losses for investors. It’s time to move on.The Company says it remains on track with its 2020 budget, with annual average production of 140,000 to 144,000 boe/d and capital expenditures of C$1.10B – C$1.20B. The Company’s net debt was ~C$2.8B down from ~C$4B last year quarter, subsequent to the quarter.
Boston Pizza used to be a good option for a stable and monthly dividend payer. The company is well established in its market and keeps renovating its restaurants to attract customers. With three different types of dining experiences and a mobile app to improve take-out and delivery experience, Boston Pizza reaches all Canadians. Unfortunately, a few disappointing quarters hurt the stock as same restaurant sales aren’t what they used to be. Management hasn’t proven it can reverse the trend and post solid growth again. Do you really think it can bring back Boston Pizza back to growth now?
Future pipeline projects may face severe regulations. There is an increasing number of opposition around such projects. This incurs delays and additional costs to develop the same pipeline. In other words, more money needs to be redirected away from shareholders to fund future projects. The competition is fierce, and the number of pipelines limited. IPL is investing massively to diversify its business. Consisting of a propane dehydrogenation (PDH) and a polypropylene (PP) facility, the Heartland Petrochemical Complex will cost approximately $3.5 billion and is located in Strathcona County, Alberta. This project will use polypropylene to create plastic. Do we need more plastic?
Most NFI’s revenue (70%) is driven by public transit agencies. The company has a strong backlog of 4,000+ buses and most of them will be delivered since cities continue to need transportation. Since government supports such purchases, you can expect more money to be spent there as a stimulus to restart the economy. NFI’s April COVID-19 update mentions that the company had enough liquidity to work through this crisis and currently is exploring more options through their bank and the Government.
First, 10 consecutive years without a dividend increase prior to the cut announcement. In other words; inflation is eating up your dividend. Second, the potential lawsuit for anti-competitive actions in the water business. CHE has already allocated $140M ($65M (Q2 2018) + $35M (Q3 2018) + $40M (Q1 2019) as a litigation reserve. Third, the company is going through various challenges and must manage an important debt due to its acquisition of Canexus. CHE’s debt increased by 76% over the past 5 years while revenue went up by 30%. Now, this recession is the final nail in the coffin.
CAE is a highly innovative company. While the company is facing an important challenge, the company quickly shifted some of its resources to offer healthcare training support regarding the COVID-19 pandemic and it expects to produce about 10,000 ventilators over the next 3 months. Sooner or later, the airlines will reopen and the demand for recurring pilot training will resume. CAE can also count on its defense segment (about 40% of revenue) to generate a constant flow of income in the meantime.
MTY has a strong appetite for acquisition (pun intended). There not a year passing by without MTY making another acquisition. This generated lots of hype around the stock as revenue grows exponentially. Management track record has been almost flawless throughout all those years which make MTY a great candidate for your portfolio if you are looking to spice it up. An investment in MTY is first and foremost about its ability to grow through further acquisitions instead of getting income from it. It may take a while, but MTY business model used to work, it should again once the economy reopen.
Between 2016 and 2020, Chorus’s long-term debt has more than doubled from $703M to $1.8B. The demand for aircraft plummeted and so is Chorus dividend. Chorus remains fragile against any economic downturn. We had a taste of what it could look like as the stock reached $5.00 on December 24th, 2018. The coronavirus is definitely affecting the airline industry and the Chorus is taking a hit for that.
The fast-food restaurant chain enjoys a strong brand recognition in Canada and is #2 in the number of restaurants in this country behind McDonald’s. We like A&W constant innovation in its menu as it was the first restaurant chain to offer a vegan burger. Revenue growth is mostly fueled by the opening of new restaurants. This is a great strategy, but we feel the Canadian market may get saturated soon.
Instead of taking the risk of retail on its shoulder, Richelieu is selling hardware goods to superstores such as Lowe’s (LOW) and Home Depot (HD). RCH grows by acquisition and is about to cross the mark of $1billion in sales. You will obviously not invest in RCH for its dividend yield, but rather for its growth perspectives. The distribution market remains fragmented, and RCH shows plenty of growth potential.
Peyto is the king of dividend cuts… enough said.
Pizza Pizza closed 13 restaurants but posted strong royalty pool sales growth (3.8%) while same store sales increased 2.0% before the crisis. This was created by closing underperforming restaurants and opening new ones. The restaurant company was already rated as sell due to lack of growth. The dividend cut was inevitable during any recession.
What do weaker funds from operation, a recession and a payout ratio at 100% makes? It makes dividend cuts. While KEG mentions they have cash on hand and they don’t have intention to cut the diviend now, the situation may change very fast in the upcoming months. The Keg’s same store sales (sales of restaurants that operated during the entire period of both the current and prior years) decreased by 2.8% in Canada and by 0.1% in the United States.
You can find our US dividend cuts & suspensions list over at the Dividend Monk.
Find out about 6 companies that will crush 2020
Each year, I compile a list of 20+ stocks that are expected to do better than the market. In 2019, my US picks outperformed the market by 7% and my Canadian picks did 10% better than the TSX. You can download 6 of my top 20 for 2020 right here: