Investing

8 High-Yield Dividends That Could Be Cut or Suspended in the Recession

Exxon Mobil’s 7.4% Yield

Exxon Mobil Corp. (NYSE: XOM) may still be the largest domestic oil and gas integrated player, but its yield is currently 7.4% because its share price is down so low (under $50, from $80 in 2019 and before). Exxon had raised its payouts for years, but with low oil prices, the $3.48 per share is currently above earnings from 2019, and well above the loss expectation and a slight recovery expectation in 2021. The company’s cash flow, balance sheet and asset sales can all help. That said, companies paying out more than they earn only have so much runway.

Rival Chevron is deemed to have a better balance sheet and better ability to keep its dividend, but its yield is closer to 5.6%. It is still hard to find many “oil bulls” these days, but Exxon Mobil stock has risen more than 50% from its panic-selling lows.

Does Simon Say an 11% Yield Is Ridiculous?

Simon Property Group (NYSE: SPG) is a top mall and retail destination REIT. The yield as it stands today would be more than 11%. With so many of its properties not open and with so many stores inside the properties now not very viable, a dividend cut seems pretty obvious here in the COVID-19 recession. Simon announced with its business update in May that its board of directors will declare a common stock dividend for its second quarter before the end of June. The company further announced in May that it intends to maintain a cash dividend and that it expects to distribute at least 100% of its REIT taxable income. That said, there are no assurances that it will have steady income that remains solid compared to past years.

Simon shares have recovered about 70% of their losses from the panic-selling peak, but they were still down almost 60% from its highs. With Simon trying to exit its planned acquisition of Taubman, that very well may result in a break-up or termination fee.

Wells Fargo Acts Like a 7.4% CD, That’s Not Insured

Wells Fargo & Co. (NYSE: WFC) is in a unique situation among the top banks in America. It effectively is forbidden from growing, its stock has been hammered and in 2019 it was allowed to raise its payout too much. While a $2.04 annualized payout was fine against last year’s $4.05 in earnings per share, the bank is not expected to make $1.00 per share in 2020 and is only expected to make $2.67 per share in 2021. The upcoming stress tests are going to be brutal on the banking sector, and there seems to be every reason to believe that regulators will either “suggest” or only approve certain capital return plans. After all, the banks are supposed to be lending the country money to operate smoothly.

One issue that may help Wells Fargo avoid a dividend cut is that Federal Reserve Jerome Powell has not been forceful in calling for automatic dividend cuts or suspensions. Former FDIC Chair Sheila Bair has been calling for dividend suspensions because of the unknown ramifications of the economy, but she is not in charge. Wells Fargo is also trading at a rare discount to its book value, but that book value declined from the end of 2019 through the first quarter (to $39.71 from $40.31) and the declines are likely to continue. The bank had almost $135 billion in tangible common equity and $183 billion in total equity.

Again, not all these dividends will be cut. Some are at much higher risk than others, and if the economy quickly moves out of the recession, then more of these payouts might be smoothed over by higher share prices.