Goldman Sachs Predicts 25% Reduction in Dividends Across S&P 500

Source: Goldman Sachs

The coronavirus pandemic could result in a significant reduction in dividends paid by S&P 500 companies, according to Goldman Sachs. The US investment bank predicted dividends to fall by 25% compared to their 2019 level.

“The record high level of net leverage for the median S&P 500 stock coupled with the ongoing credit market stress means many firms are unlikely to borrow to fund their dividend,” Goldman said in a note.

According to Fox Business, there have been 12 S&P 500 companies that have cut or suspended their dividends, and that number is expected to increase as earnings season gets underway next week. Boeing, Delta Air Lines, Ford, Macy’s and Occidental Petroleum are among the companies to have already taken action. Other companies like Shell and Exxon Mobil have announced cuts in spending.

“The recently passed Coronavirus Aid, Relief and Economic Security (CARES) Act stipulates that any companies that borrow money from the federal government may not repurchase stock, pay a dividend or make any other capital distributions until 12 months after the loan is repaid in full,” wrote Cole Hunter, vice president of U.S. portfolio strategy at Goldman Sachs.

The economic slowdown caused by the pandemic will slash S&P 500 earnings by 33 percent, Goldman says. Such a drop would normally result in dividends falling by 11 percent, but “certain large dividend-paying industries are particularly vulnerable to the economic shock of the coronavirus outbreak and the collapse in crude oil prices,” wrote Hunter.

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Source: Equities News