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Quick question for the veteran investors on this forum - When we see a dip in the markets (say, 20%), does this typically impact dividend payouts? I realize there may be no "typical" answer, but any insights would be appreciated.
I'm a few years from retirement, and I track the dividends I am collecting today; primarily from CDN and US total market ETF's. I'm thinking about how much variance I can expect to see in this dollar amount once I am relying on it as part of my annual income.
 

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In the indexes, there could be a dip in dividends, especially if this recession extends beyond a few quarters. However, any dip will likely return in a few years or even start to grow. In 2008-09, there was definitely a freeze and some cuts in the vast majority of dividends for several years. Companies won't begin to raise them until they have confidence in the business outlook, which is clearly not present now. 2010-2011 was when dividends started to go up again.

Some individual companies, though, had a much harder time. Manulife, one of the biggest financial companies in Canada in the 2000's, suffered greatly and had to cut their dividend and raise new capital, diluting shareholders. It took them 10 years to restore the dividend fully - it just happened last quarter.
 

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I think it will depend a great deal on the business. I would be amazed if Suncor doesn't pull back. The major utilities and staples like Loblaw may not be affected at all. I expect there will be a lot in the middle where they will reduce for a few quarters until the dust settles, but wind up back at par within a year. I think we're still at the beginning of the disruption, so it's early to speculate on the long term effects.
 

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I think it depends on the situation and how one's configured.
A bear market (ex -20% drop) doesn't necessarily mean an impact to dividends. However, bear markets are frequently a precursor to an economic slowdown/recession. If companies aren't making money or growing their profits, that's going to impact dividends. Looking at the situation today, with many businesses unable to operate, a number are either cutting or suspending their dividends. Technically, we aren't in a recession yet (2 quarters of negative growth) but it's pretty much foregone conclusion. I can't see how that won't impact the dividends being paid out by broad market etf's. But I'm not sure of a great way to be able to estimate potential dividend variance to sketch out retirement income. Who can predict how long dividend cuts and suspensions will last or how broad the impact will be?
Alternatively, some people (me included) have manually built a dividend portfolio with an emphasis on companies in sectors that are less likely to cut their dividends: Utilities, banks, pipelines, consumer staples, etc. People will hopefully still pay their electricity bill, phone bill, buy food, etc, during a recession. I can't recall the last time a CDN bank cut their dividends, though they have paused their growth and other financials like MFC, a lifeco, cut their divvies during the 2008 recession. Note: I don't necessarily recommend this route as it does lack diversification, leaving one susceptible to sector shocks, individual companies running into issues, etc.
 

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Equity ETFs during an economic recession most likely will see a dip in distribution payouts simply because of the number and type of holdings they contain. How much will vary by type of ETF and its constituents, how many holdings raise dividends and how many have to cut their dividends. A dividend ETF based on dividend growth stocks like Dividend Aristocrats may have a relatively small reduction in distribution payouts due to the robustness of the holdings. Others like XEI that are based more on yield (and a higher dividend payout ratio) have some lower quality holdings that have no choice but to cut dividends.

I expect all of my ex-Canada ETFs like VTI, XEF, etc. to have a dip in distribution payouts. How much depends on how deep and long the current economic downturn lasts BUT I make an assumption that a 25-30% cut overall is not out of the question for a year or two. In my individual Canadian stock holdings, only one stock so far, NFI, has cut its dividend in half and that is perfectly understandable. They've had to close much of their manufacturing capacity laying off workers and perhaps many of their customers will cancel bus orders. I expect there will be a few others, but if the economy kicks back in by the end of this year, I'd hopefully not see more than about a 10'% near term cut in dividends in my Cdn stocks. Perhaps 20% at the outside. Time will tell.

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Discussion Starter #7
My thanks to everyone for their input on this. Sounds like a 30% reduction is a worst-case short-term scenario to plan for. This helps me estimate how much of my current dividend payout I can count on as being "very likely". Of course, not guaranteed in the same way as a DB pension or an annuity...
 

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I wouldn't call 30% reduction worst case. Worst case could be like the Great Depression with a 70% decline in the Dow Jones from peak. Consider 30% more like the far end of the likely range, and dependent on how soon the recovery occurs. Companies will try to hold on as long as they can without killing their balance sheets, so the sooner a recovery takes hold, the less severe will be the depth of dividend cuts.
 

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I wouldn't call 30% reduction worst case. Worst case could be like the Great Depression with a 70% decline in the Dow Jones from peak. Consider 30% more like the far end of the likely range, and dependent on how soon the recovery occurs. Companies will try to hold on as long as they can without killing their balance sheets, so the sooner a recovery takes hold, the less severe will be the depth of dividend cuts.
The main difference between now and previous depressions is quantitative easing. The effect is really unknown of course but yes I think 30% cut in index dividends is probably a worst case scenario. I would say the most likely scenario is less than half of that. Don't fight the fed.
 

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I wouldn't call 30% reduction worst case.
Me neither. Bargaining on a 30% reduction in dividend yield overall, I think, is optimistic. IPL just reduced by 73%. I picture a some companies completely turning off the taps, maybe for 2 or 3 quarters and even then reducing by 30% or 50% when they come back on stream. My guess is that a 70% reduction is possible for 2020.
 

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Stock markets have gone to zero before (usually requires some sort of revolution), so that is the worst case. Now, I don't think that is likely to happen here, but people need to not kid themselves about 'worst cases'.
 

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Cross post from another site:
ECB recommends that banks skip dividends until October
Announced last Friday in case anyone missed this.
"The European Central Bank (ECB) today updated its recommendation to banks on dividend distributions. To boost banks’ capacity to absorb losses and support lending to households, small businesses and corporates during the coronavirus (COVID-19) pandemic, they should not pay dividends for the financial years 2019 and 2020 until at least 1 October 2020. Banks should also refrain from share buy-backs aimed at remunerating shareholders."

ECB asks banks not to pay dividends until at least October 2020

This is not binding at this point (in fact, UBS announced that they will pay full year div), but many banks have agreed to this.

I wonder if the Bank of Canada might do the same here (and the Fed in the US). Note that Canadian bank pref shares have NON-cumulative dividends (as are insurance companies dividends).
 

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Clearly, International ETFs like VXC, XAW, VEA, etc. will see lower yields at the next distribution. Really don't know what the references to 2019 are about since that is water under the bridge.....unless a 2019 fiscal year doesn't end until, for example, March 31. Which means VGK, which I own, will have a smaller distribution in June (just got most recent one this past week).
 

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If banks encounter capital problems due to all this (bad loans) it's possible the banks will have to stop paying dividends to preserve capital. This was one of the decisions in the regulatory regime after the 2008 bailouts. The next time around (and that could be now) banks might be required to stop paying dividends until their capital positions improve.

Previously, in 2008-2009, Canadian banks were given generous emergency funding when they were on the brink of insolvency. They still kept paying dividends... quite reckless!

If there's a repeat of the situation, investors should be ready for the possibility that banks stop dividends. Agent99 already posted something like that above, and there's also talk in the US for the same.

It's simple: companies in severe liquidity distress should not be wasting money on dividends.
 

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If there's a repeat of the situation, investors should be ready for the possibility that banks stop dividends. Agent99 already posted something like that above, and there's also talk in the US for the same.

It's simple: companies in severe liquidity distress should not be wasting money on dividends.
After reading that ECB post, owning a lot of dividend stocks, I am in kind of a dilemma.

Maybe Canadian Banks are more resilient. Bank of Canada did a study last year that concluded they could handle a major recession (I need to find the link, but it was based on something like 8% drop in GDP, 12% unemployment, 40% drop in housing in bubble markets (I will try and confirm those numbers) Not sure they addressed ability to pay dividends. Actually they did. This is the report, My rough numbers above are close to the ones they used. Remember, this was just a study - they didn't predict those numbers and they could not have possibly known how soon they would be tested.

What happens to share prices if companies cut or stop their dividends ? Well we know that, and IPL today is a good example. They will tank further.

Should we get out now, rather than later, and put aside proceeds for living expenses (to replace the lost dividends)? Better now than after announcements that cause share prices to drop further? Thinking, maybe for shares, other than banks and other blue chips that should bounce back even if they do cut dividends.

Maybe buy some cumulative preferreds from blue chips?
1 - 2yr GICs to store cash for future living expenses?

This is a time when us retirees living off our savings, we envy those with pensions !
 

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What happens to share prices if companies cut or stop their dividends ? Well we know that, and IPL today is a good example. They will tank further.
I thought IPL would drop much more than they did on that news and also oil right at $20/barrel right now.
 

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OSFI relaxed Tier 1 capital requirements and CMHC has just bought a shitload of insured mortgages to provide banks more capital flexibility on their balance sheets. I don't see dividend decreases in the big 5 UNLESS the government has to inject real money into the banks and that is not supposed to happen unless common equity share prices drop to $5 and all the NVCC compliant prefs are converted to common equity first. On the same token, they would not dare cause anger by raising them either.

I'd watch the 2nd tier and alternative lenders closely. Once loan losses start to take off later in 2020, some of them may not survive.
 

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I thought IPL would drop much more than they did on that news and also oil right at $20/barrel right now.
Some of the drop was likely already built in. Probably is for PPL too.

IPL was at $11.00 only 3 trading days ago.

I think WCS is now just over $6.00. Desperate times for oil industry.
 

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Several large banks in the UK are cancelling their dividends this morning
UK banks agree to scrap £8bn dividends amid recession fears
Markets slide as UK banks cancel dividends and factories slump - business live

Late last night HSBC, Royal Bank of Scotland, Standard Chartered, Barclays and Lloyds Banking Group axed their outstanding 2019 dividends, to protect their cash reserves.

They have all agreed not to make dividend payments in 2020, and to suspend share buybacks, in a flurry of co-ordinated announcements.
IMO there's a high probability that Canadian banks (yes even the Big 5) could suspend dividends this year. I think one of the problems in Canada is overconfidence in banks and lack of awareness of their tenuous financial condition. That could result in a rather large emotional hit to investors who get surprised. That emotional hit / surprise is not as severe in other parts of the world (US & Europe) because they are pretty aware that their banks aren't so solid.
 

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I also think it's reckless of the CIBC CEO to say there will be no dividend cuts:
No dividend cuts as 'reliable income incredibly important' amid pandemic: CIBC CEO - BNN Bloomberg

How dare he say that he refuses to protect the capital position of the bank? This is basically a big middle finger to shareholders and depositors! If the CEO is not committed to protecting the bank as a going concern, he's not protecting the shareholders interests.

If Victor Dodig is not going to protect the shareholders and depositors, he should be fired -- immediately.
 
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