From Boeing to HSBC, companies are scrapping billions in dividends on coronavirus fears
- Investor lose out on payouts as companies hoard cash, bow to regulatory pressure
- Investment-grade companies may need US$90 billion in new financing if downturn lasts six months, Goldman Sachs says
Despite three major overhauls in the past decade and a series of reputation-damaging compliance missteps, investors have stuck with HSBC, in large part because of its consistent cash dividend.
HSBC’s shareholders are not alone. Investors globally have pushed companies into hefty payouts in the form of dividends or share buy-backs over the past decade – dividends totalled nearly US$300 billion worldwide in the fourth quarter alone.
That spigot of money, however, is turning off as companies ranging from Boeing to Marriott International to Volkswagen have cancelled or are considering suspending massive payouts because of the uncertain economic outlook or regulatory pressure in light of the coronavirus pandemic.
“What is happening right now is a very sharp near term shock to cash flows,” Eli Lee, head of investment strategy at the Bank of Singapore, said. “The near-term goal is to prevent these companies from going into bankruptcy and also for these companies to shore up their balance sheets if this shock becomes a far longer one than we think.”