Pandemic Dividend Cuts

There’s been plenty of dividend cuts this year. It’s sometimes hard to notice if you don’t invest in a ton of individual stocks. However, even if you’re an index investor, they still are happening behind the scenes.

That means that dividend growth may be quite muted this year even if you’re putting additional money into stocks because of these dividend cuts or suspension.

This article from Wisdom Tree does a good job of presenting what’s happened in the first half of the year. Between 11/29/2019 and 6/25/2020, the S&P 500 saw 41 dividend suspensions and 15 cuts. That means 7.5% of dividend payouts in the S&P disappeared in a few months. Given that we’re still heavily impacted by the pandemic, it’s possible that’s not the end.

That might not seem like a ton but a 7.5% drop basically erases any growth that an investor may have had last year so it’s certainly a step back. It’s not all bad news as a good portion of companies have continued to raise their dividends in this time frame as certain industries weren’t as impacted.

In fact, in the large cap dividend payers, industries such as consumer staples, information technology and health care have actually grown dividends in that same time frame. However, they were more than offset by shrinking in consumer discretionary, energy and especially real estate.

While large cap companies haven’t been too impacted, the smaller end of the scale has been. As shown in the data, while WisdomTree’s large cap dividend index only saw 6.4% of the companies cut or suspend the dividend, the mid cap index saw 28% of companies do the same and the small cap index saw the same for 1/3rd of the companies.

There were still companies raising dividends but the overall trend was quite down and really hit some of the smaller companies.

One the growth rate side, the large cap index had a dividend growth rate of -2.41% between March and June. As mentioned before, not a huge hit BUT the mid cap and small cap index fell 20.9% and 26.6% respectively. That’s a big impact to anyone who’s investing in that realm.

It’s an interesting view of the overall market as the current impact has been most heavily felt outside of the large cap realm. That shows in stock performance too as the S&P 500 is only about 7% off it’s all time highs while the Russell 2000 is more than 15% off its high.

It’s certainly not just small companies that have been impacted as even big guys like Disney, Boeing, Ford and Delta have suspended dividends. However, currently, it’s certainly been affecting those smaller players a lot more.

So what does this all mean for dividend investors? It means that growth is going to be much harder to find this year and likely into the near future. It’s hard to see beyond that but eventually a lot of(but not all) of these suspensions or dividend cuts will reverse and start to grow but it might be a tough slog for a bit of time.

There’s obviously companies that are making it through this relatively well. For example, in my dividend aristocrats portfolio, only one of the aristocrats, Ross Stores has suspended their dividend. I no longer own that stock in that portfolio but it does speak to the fact that long term payers haven’t been hit hard yet nor have many of the larger companies. That doesn’t mean that this is the end of dividend cuts or suspension but it does mean that some areas have been spared right now.

However, if you do own real estate or small caps or mid caps then your journey is a bit more painful as those companies have seen a lot more cuts or suspensions. Given that 30% of my allocation is in those areas, I’ve certainly seen some decreases and would expect that to continue in the near term.

June is one of my 4 big months in the year as a lot of my ETFs and mutual funds pay out this month so let’s see how I did there. I was hoping for some growth after a few months of shrinking but given the above and my allocation to some hard hit areas, I’m thinking it’ll go the other way.

June 2020 Dividends and Dividend Cuts

June 2020 ended up at $2466.98. That’s a 1.3% reduction from last year.

It’s not growth BUT it’s still a great month. I do think dividend cuts especially on the REIT side impacted by ability to see growth this month despite additional dollars flowing in. However, it was also due to one mutual fund that sometimes pays in June not paying out in June this year. That small payout was about 5% of last year’s June dividends and would have meant I’d actually grow dividends if I saw a similar payout this year.

Overall, it’s hard to complain about a near $2,500 month even if it’s not growing this year. Despite the various cuts and/or suspensions in my index investments, the number is still pretty damn good.

That money re-invested will help my forward income grow by ~$72 annually which ain’t bad.

The nice part is that 73% of the dividends are in tax-advantaged accounts which means no taxes on them this year!

For the year, it brings my dividend total to $5,425.95, a 0.3% decrease from where I was at this spot last year.

That’s a combination of bond yields falling and dividend cuts but I’m hoping I can return to growth soon as I re-allocate more money from some sales in March(selling stock from a company I work at) into more shares of ETFs. It’s mostly re-allocated at this point but still not fully deployed.

Still, despite the dividend cuts and slowing growth this year, I’m still so far ahead of where I was when I started tracking this a few years ago. I’ve more that doubled these June dividends and am hopeful that before the year is through, I can return to growth and be higher than where I ended up for 2019. It’ll just be a combination of additional dollars and re-investing money that will hopefully offset any dividend cuts that may still come this year.

Steve, my dividend employee, earned himself a solid $14.80/hr this month bringing his annual hourly wage to $5.43/hr. Steve’s biggest months are still ahead of him and I’m sure that number will be higher before the year is through.

You can see that in the graph below as September and December, two big months are still ahead.

Those smaller months between those big studs are growing too. My M1 Finance portfolios are starting to throw off some solid monthly dividends and that will only grow more as the year progresses. In June, those two accounts had $72.57 in dividends, a small portion of my overall number, but a big jump over the $16.73 they threw off last year.

Those are small numbers in the realm of a big month like June but can really help the smaller months like July or August grow as those numbers increase. Given that I own a lot of individual stocks in those accounts, the random payments tend to impact all months of the year.

Overall, I can’t really be too down about this year’s results. Sure, I’m not growing my dividends but my portfolio is still doing well and I’m still getting a solid amount to re-invest PLUS I have a job so things could be a lot worse.

Investing has certainly been harder this year than in past years but it’s also possible there’s worse to come. There’s certainly a lot of negative things out there still that may impact us negatively. It does feel like right now there is a big disconnect between what’s happening on main street and what’s happening on wall street. I don’t know if I remember a time where it’s been like this but I guess I haven’t been investing for that long.

It’s weird but these days I’m definitely less concerned about stock prices and more concerned about the hard to stomach news we see in various areas. It’s certainly been a tough year on the personal life front for many.

However, on the investment side, since I have a long term mind-set, I’m not overly concerned about prices or dividends in the near term. It’s the ten years out horizon that I look forward to when I buy today.

June Total : $2466.98
2020 Total : $5425.95
Portfolio monthly hourly wage : $14.80/hr
Portfolio annual hourly wage : $5.43/hr

June 2020 Expenses

June was an expensive month. First, I had to finish up my taxes and save a bit more on that front.

Second, I had a root canal that I paid for fully in June and let me tell you these suckers are expensive. I had some bad luck with teeth(and poor dental care when I was young in Poland) that led to me needing TWO root canals this year. Yikes, that’s no fun!

Insurance covered most of the first but given that these guys are $1500+ each, it maxed out the insurance which meant I had to pay for the second one fully.

It’s not even done yet and still bothering me so who knows if I’ll have to do some more work on these teeth.

This healthcare system sucks! That means that despite insurance my healthcare costs were extra high here which will likely lead to some poor results.

Last year my savings rate for June was 50.09% so let’s see where I ended up this month.

My savings rate was the lowest number I hit this year and comes in at 19.4%. This number jumps to 26.97% when I add in employer contributions.

On a gross income basis, I saved 13.6% of my income and 18.9% after employer contributions.

That’s not a great month but it was expected given the expense. First came the HUGE health bill. Why do I pay for health insurance again? Sure, Dental is cheap but the benefit it provides maxes out at $1,500 which isn’t enough for any serious dental work. That mean that after my first root canal(which had a cost share so it’s not like it was free!), I had to pay full freight for the second and that up a huge chunk of my expense this month.

Beyond that, rent was #2 then came groceries which were higher than usual since we ate in quite a bit and I cooked some nicer meals this month.

Taxes were next and were the remainder I had to save for my tax bill from the various capital gains I had last year. I’ve bumped up my withholding this year and I think I should be a lot closer to the pin when it comes to taxes owed next year.

After that comes health insurance which means that health related expenses were more than 1/3rd of my expenses this month, a rough health month for sure.

I also spent a bit more on gifts this month as my wife’s birthday and father’s day hit during this time.

Beyond that, it was the usual suspects although household showed up for the first time in a while as we updated some sheets.

I also spent a bit on the blog by buying a new theme and updating the look of the blog a bit. Hopefully it doesn’t suck!

Overall, June was an expensive month and definitely the worst month this year as shown by the graph below.

The combination of saving more for taxes and health expenses certainly hit hard but at the end of the day I was still able to save money and that is still pretty cool.

It’s not one of those 50%+ savings rate months I’ve had so many of this year but these off months do happen even when you’re frugal like me because expenses do crop up here and there.

I’m still in a good spot when it comes to my savings rate goals for the year as I’ve already hit 50%+ savings rate in four of the six months and my overall savings rate at the half year mark is still above 50%.

I’m sure I’ll have some expensive months coming up but since we’re staying in a lot more often due to the pandemic, I can probably offset them in months where random costs don’t creep up.

July already has a few costs I’m aware of as my car property tax and registration are due. However, it also has some good news in the form of a refund for our plane tickets for our cancelled Spain trip. It’s only two months past when our flights would have been but we finally got that refund!

Overall, this was a solid month anyway you slice it. On the dividend front, sure dividend cuts meant I didn’t grow but another near $2,500 month isn’t too bad. On the expense side, sure I had a lot of expenses but I still managed to save money and that’s nothing to be upset about in this environment. It’ll certainly help those dividend numbers in the future.

Thanks for reading and here’s hoping you had a good month in June as well. Here’s to a solid July.