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Trader John Romolo works on the floor of the New York Stock Exchange, Wednesday, Aug. 7, 2019. U.S. stocks fell broadly in midday trading Wednesday as central banks around the world cut interest rates and increased fears that global growth is being crimped by the U.S.-China trade war. (AP Photo/Richard Drew)
TENDING THE YIELDS

GM is the latest company halting its dividend payments to save cash

Karen Ho
By Karen Ho

Global finance and economics reporter

Stocks that pay dividends, a popular investment vehicle for investors focused on long-term growth, may be little less appealing as more companies suspend their payments to preserve cash following major declines in sales and business activity.

Today (April 27),  US carmaker General Motors said it was suspending its quarterly dividend and stock buybacks, citing the closure of factories and auto dealerships across the country due to the Covid-19 pandemic. The annual dividend paid $1.52 per share.

The company is also extending a $3.6 billion, three-year revolving credit facility, according to CNBC.

“We continue to enhance our liquidity to help navigate the uncertainties in the global market created by this pandemic,” said GM Chief Financial Officer, Dhivya Suryadevara in a statement. “Fortifying our cash position and strengthening our balance sheet will position the company to create value for all our stakeholders through this cycle.”

Shares of GM rose more than 2% to close at $22.47 on Monday, but that figure is still 40% lower than its opening price on January 2.

GM isn’t the only automaker to suspend dividend payments. In March, Ford suspended its dividend payments, withdrew its guidance for the year, and issued a statement saying the company would fully draw from two credit lines totaling $15.4 billion.

Nine companies in the S&P 500 across a variety of industries have announced dividend suspensions this month. These include Carnival Cruise Lines, cosmetics company Estée Lauder, hospital firm HCA Healthcare, hotel operator Hilton Worldwide Holdings, retailer Kohl’s, and casino operator Las Vegas Sands, according to Barron’s

Other companies suspending their quarterly payouts include the retailer TJX, which announced the news in its 10K filing late last month; Tapestry, the luxury parent of brands like Coach and Kate Spade; and clothing manufacturer PVH.

Energy companies that have announced dividend cuts due to an oversupply in oil and negative effects from the pandemic include oil services firm Schlumberger, Alliance Data Systems, Houston-based utility CenterPoint Energy, Exploration and production company Noble Energy, as well as oil and gas driller Helmerich & Payne, which is cutting future dividend payments by 64%.

 

GM’s factories in the US and Canada have halted operations since mid-March due to the Covid-19 outbreak in both countries. While the president of the auto workers union in Canada told Automotive News Canada he is “cautiously optimistic” about the northern facilities opening early next month, the president of the United Auto Workers in the United States said that timeline would be “too risky” for American workers and their families.

For investors wondering how long this dividends will be suspended, one analyst told the Wall Street Journal trying to predict the profits of automakers for the rest of the fiscal year as “all but impossible.” Among the uncertainties are when production would resume and how quickly it would get back to normal, potential disruptions to supply chains, and the possibility of a second wave of Covid-19 outbreaks.

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