Companies of all sizes have to develop careful plans to protect their revenue streams and assets and to ensure their model sets them up to thrive for the present and future. However, when the coronavirus became a major global threat, those careful plans had to change in an instant. Time will tell how big of a financial crisis it will create, but it’s no secret companies are having a difficult time meeting expenses and financial obligations to their suppliers, employees and other stakeholders. Many investors have seen their dividend payments reduced or suspended temporarily as a result. Companies are doing what they can to navigate these difficult times and here are some things you can expect in the meantime as an investor.
Suspending vs. Reducing Dividend Payments
The situation every company is dealing with is unique. Suspending dividend payments for the near future, or reducing the amount significantly, should be viewed as a positive if you’re an investor. You may not be earning the income you’re used to for a while, but there’s a higher likelihood of the business being viable in the long-term by cutting expenses in certain areas like those. Experts generally agree that most sectors will bounce back once the coronavirus is contained and consumers are comfortable with spending money again. The unknown is whether that is a couple of months from now or a year or longer.
Will Dividends Bounce Back?
Cutting dividend payments temporarily allows companies to manage their cash holdings and potentially recover from the financial crisis quicker as a result. History has shown that withholding dividend payments temporarily in a time of crisis does not negatively impact a well-structured business significantly. As an investor, understand the short-term outlook of your investments may not be ideal, but the long-term outlook should not be as bleak. The financial crisis caused by the coronavirus outbreak will end, so staying the course is important during these times.
Unprecedented Times Means Lack Of Clarity For Investors
Each business is impacted differently by the coronavirus pandemic. Take a look at your investments on an individual basis, see what the company is doing to protect their long-term viability, and then determine whether you foresee them being able to make dividend payments in the future. In most cases, an investor would be wise to accept a temporary reduction or suspension in their dividend payments rather than abandoning the investment in favor of another. The difficult part is not knowing how temporary the cuts will be. No precedent is set because of the unprecedented situation, but investors likely won’t see their normal payments for at least a couple of years.
Investors should not expect their investments to rebound to the levels they were in 2019 until the economy is back to normal. The difficult part is predicting whether the norm we are used to will have to change. Stock Investing Info can help you navigate these rough and unknown times and protect your long-term investments as much as possible. We can help you evaluate your overall financial situation, so contact us to schedule a consultation.