Easy on Dividend Cut or Salary Cut – How are Stocks Fighting COVD-19  

  • Mar 24, 2020 AEDT
  • Team Kalkine
Easy on Dividend Cut or Salary Cut – How are Stocks Fighting COVD-19  

The world is witnessing a never-before misery amidst the current Covid-19 situation, especially businesses and its stakeholders. Originating from China, the disease has made its way to other countries and regions like the US, Italy, Middle East, Australia and several Asian nations.

It is predicted that the world is nearing a financial crisis, which will be worse than the 2008 financial crisis. Numerous businesses have already started to shutter down with flights grounded and supply chains disturbed.  

The declining charm in stocks has never looked so unpredictable to return, as financial markets continue to lose investor confidence, globally. The governments are also engaged in taking strict measures and ensuring their compliance. Along with social precautions, the governments have also announced fiscal measures to support the economic growth and mitigate the impact of slowdown.

With intensifying measures to curb the disease spread, companies are also citing ways to control their cost in times when businesses are enduring through a slowdown. There is an increased pressure over businesses to maintain judicious allocation of their funds, as considering the current scenario, expenses are less likely to decrease but revenues are surely decreasing.

Companies are managing their expenses by paying lesser salaries to employees or deferring dividend payments to a future date. News have also surfaced about temporarily stand down of employees from several major companies.

As investors look upon for dividend earnings from their investments, companies don’t look like in a position to pay the investors. Moreover, investors put their money in dividend stocks to relish a portion of the profits of the company while systematically creating a stream of income.

Current times of the Covid-19 outbreak are a test for companies as well as investors, as the world is slowly moving towards adopting more stringent measures to tackle the coronavirus outbreak and its impact.

Flight Centre Travel Group Withdraws Interim Dividend

Investment in dividend stocks has always been considered as a potential avenue to curb the mounting risks associated with market uncertainties amidst erratic market scenario.

However, one of the world’s largest travel groups, The Flight Centre Travel Group (ASX:FLT) cancelled its 2020 fiscal year interim dividend of 40 cents per share, as an appropriate measure to preserve cash and protect long-term shareholder value. A total of $40.1 million was scheduled to be paid to shareholders in April 2020.

Moreover, the Company also declared a 50% pay-cut for its senior leaders and plans to chalk-out new and more comprehensive cost reduction and cash preservation plans to help combat the virus’ impact in the short- to medium-term.

Qantas Defers Shareholder Dividend Payment

Another international flight business, Qantas Airways Limited (ASX:QAN) has suspended scheduled international flights from late-March 2020 while reducing domestic flights to 60 per cent.

Citing the uncertainties surrounding the coronavirus contagion, QAN also announced deferring of a $201 million shareholder dividend until September 2020. In addition to this, the Company has decided to temporarily stand down 2/3 of its employees to preserve as many jobs as possible in longer term.

In an attempt to comply with restrictions imposed by the local and international governments, Qantas and Jetstar have made numerous alterations to its regional flight schedules.

Brisbane Broncos Decides to Defer Final Dividend Payment

Brisbane Broncos Limited (ASX:BBL) has also deferred the payment of its 2019 fully franked final dividend of one cent per ordinary share announced during February 2020. The Company is unable to quantify the financial impact of the outbreak of coronavirus in present times.

The Company believes that the decision for the deferral of dividend to 15 October 2020 currently is prudent and is in the best interests of BBL as well as its shareholders. It plans to reassess the financial position of BBL, once the date is closer.

Moreover, the National Rugby League competition would continue to proceed with no access to the general public. However, this may change at any time subject to ongoing developments and BBL expects a significant impact of COVID-19 on the 2020 revenue and profit results of the Company.

Moreover, the Company is prioritising identification and implementation of cost-saving initiatives to mitigate the impact as much as possible since it is difficult to forecast accurate quantum of the financial effect.

Briscoe Group Cancels Final Dividend

Consumer discretionary player, Briscoe Group Limited (ASX:BGP) has also cancelled the final dividend of 12.5 cents per share that was to be paid on 31 March 2020 to all shareholders as a result of the uncertainty enveloping the probable impact of COVID-19 and the announcements made by the Prime Minister.

BGP also mentioned that there has been a significant jump in online purchases made by customers and there has been an unpredictable trading across both the homewares and sporting goods segment.

From now onwards, the Company is required to cease retail operations for a minimum of four weeks and is unable to forecast the extent of the impact from these unprecedented events due to the level of uncertainty around these compulsory store closures.

IVE Group Withdraws EBITDA Guidance/Cancels Interim Dividend

IVE Group Limited (ASX:IGL) has also withdrawn FY20 EBITDA guidance and cancelled the interim dividend of 8.6 cents ($12.7 million) announced on 26 February 2020. The Company has taken a precautionary measure that signifies an intent towards maintaining high liquidity in times of increasingly volatile and uncertain market.

IGL has cash on hand of $29 million and undrawn committed credit lines worth $18 million as on 29 February 2020, while having a headroom within its banking covenants.

RedHill Education Revokes Interim Dividend Payment Decision

Education market player in Australia, RedHill Education Limited (ASX:RDH) has announced that it has not provided guidance on its earnings for the present financial year and is not in a position to provide a trustworthy forecast amidst the uncertainty around the impact of coronavirus.

The Company anticipates material impact on its financial performance due to international travel bans. Moreover, RDH has temporarily stopped delivering face-to-face courses at all its campuses and has implemented online learning systems and developed online learning materials to ensure that its students continue to receive quality learning experiences and outcomes.

Further, the Company has withdrawn its interim dividend payment decision with a view to conserve cash and extraordinary circumstances impacting RedHill.

These back-to-back withdrawals of interim dividend by companies may create mixed feelings amongst investors in highly uncertain times of the Covid-19 spread. Let us look at their stock performance on 23 March 2020.

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