Near-term concerns have cropped up due to the COVID-19 pandemic, including fewer business activities, supply-chain disruptions and a slowing of the U.S. economy. Amid the crisis, falling stock prices have sent dividend yields soaring, but many companies may be forced to suspend or even trim dividends to preserve cash. Investors who focus only on the highest yielding stocks or rely on backward-looking statistics, may find themselves holding shares of troubled companies that go on to cut or suspend their dividends and suffer painful share-price declines.
Just last week, automobile giant Ford announced the suspension of its dividends making it one of the first companies to take such measures during the pandemic.1 However, history is riddled with examples of well-known, long-time dividend payers who have been forced to cut dividends, including Vodafone, who raised dividends each year since 1998 then slashed payments 40% in 20192 and the once synonymous blue-chip stock, General Electric (GE). GE struggled to navigate a changing market for power and electricity and was force to cut its dividend twice, once in November 2017 and again in October 2018,3 resulting in a combined dividend cut of 95%.
Dividend payers may serve investors best when investors screen for factors that may signal trouble ahead, such as financial health. The VanEck Vectors Morningstar Durable Dividend ETF (DURA) tracks Morningstar’s US Dividend Valuation Index, which evaluates financial health using Morningstar’s Distance to Default score. Distance to Default is a measure of financial health that considers a company’s balance sheet strength and equity market data to assess the likelihood of bankruptcy. Distance to Default has proven to be an effective predictor of dividend cuts: those companies with the lowest probability of default have had the lowest probability of future dividend cuts, according to Morningstar.
Morningstar’s recently published whitepaper “Health Screening for Dividend Payers” provides a deep dive on their Distance to Default measure and how it may help investors avoid companies with at-risk dividends. View the full whitepaper here.
2,3Source: Morningstar, Health Screening for Dividend Payers.
This content is published in the United States for residents of specified countries. Investors are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this content. Nothing in this content should be considered a solicitation to buy or an offer to sell shares of any investment in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction, nor is it intended as investment, tax, financial, or legal advice. Investors should seek such professional advice for their particular situation and jurisdiction.
S&P 500® Index: consists of 500 widely held common stocks covering the leading industries of the U.S. economy.
The S&P 500 Dividend Aristocrats Index is a list of companies in the S&P 500 with a track record of increasing dividends for at least 25 consecutive years. It tracks the performance of well-known, mainly large-cap, blue-chip companies
The Morningstar® US Dividend Valuation IndexSM was created and is maintained by Morningstar, Inc. Morningstar, Inc. does not sponsor, endorse, issue, sell, or promote the VanEck Vectors Morningstar Durable Dividend ETF and bears no liability with respect to the ETF or any security. Morningstar® is a registered trademark of Morningstar, Inc. Morningstar US Dividend Valuation Index are service marks of Morningstar, Inc.
The information herein represents the opinion of the author(s), but not necessarily those of VanEck, and these opinions may change at any time and from time to time. Non-VanEck proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Historical performance is not indicative of future results. Current data may differ from data quoted. Any graphs shown herein are for illustrative purposes only. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.
Any indices listed are unmanaged indices and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in a fund. An index's performance is not illustrative of a fund's performance. Indices are not securities in which investments can be made.
An investment in the Fund may be subject to risks which include, among others, investing in the consumer staples, energy, health care, and utilities sectors, small and medium-capitalization companies, equity securities, dividend paying securities, market, operational, high portfolio turnover, index tracking authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversified, and concentration risks, which may make these investments volatile in price or difficult to trade.
Fund shares are not individually redeemable and will be issued and redeemed at their net asset value (NAV) only through certain authorized broker-dealers in large, specified blocks of shares called "creation units" and otherwise can be bought and sold only through exchange trading. Shares may trade at a premium or discount to their NAV in the secondary market. You will incur brokerage expenses when trading fund shares in the secondary market. Past performance is no guarantee of future results.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Funds carefully before investing. To obtain a prospectus and summary prospectus for VanEck Funds and VanEck Vectors ETFs, which contains this and other information, call 800.826.2333 or visit vaneck.com. Please read it carefully before investing.
Web Access Notice: VanEck is committed to ensuring accessibility of its website for investors and potential investors, including those with disabilities. If you have difficulty accessing any feature or functionality on the VanEck website, please feel free to call us at 800.826.2333 or email us at firstname.lastname@example.org for assistance.
This website is published in the United States for residents of specified countries. Investors are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this website. Nothing on this website should be considered a solicitation to buy or an offer to sell shares of any investment in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction, nor is it intended as investment, tax, financial, or legal advice. Investors should seek such professional advice for their particular situation and jurisdiction.
Investing involves risk, including possible loss of principal. An investor should carefully consider investment objectives, risks, charges and expenses carefully before investing. This and other information can be found in the appropriate regulatory documents made available for a specified country as designated in this website.
Van Eck Securities Corporation, Distributor 666 Third Avenue New York, NY 10017800.826.2333