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These 3 Dividend Giants Could Cut Their Payouts Tomorrow

By Dan Caplinger - Mar 18, 2020 at 12:26PM

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There's a lot of danger in the market right now.

The COVID-19 pandemic has ravaged the world, and the disease continues to spread in the U.S. despite efforts to control it. That's having a huge impact on people's lives, and it's dramatically changed the way businesses operate.

Many companies are facing unprecedented challenges, and despite the best efforts of central banks and policymakers, it's getting increasingly difficult for many businesses to get the money they need to sustain themselves during tough economic times. That's why even some stalwarts of the dividend investing universe could face the prospect of having to cut their dividends in short order if things don't get better soon. Below we'll look at why high-yielding dividend stocks Boeing (BA -4.95%), ExxonMobil (XOM -1.58%), and General Motors (GM -5.96%) might face the prospect of reducing their payouts soon.

Blue screen with word Dividends and various sector images.

Image source: Getty Images.

Losing altitude

Boeing isn't well known for its dividend growth, and its current streak of dividend increases dates back just eight years. Yet over that time, the aerospace giant has paid shareholders a lot more cash every quarter, going from $0.485 per share in 2013 to $2.055 per share in 2019. With the stock's recent plunge, Boeing now yields more than 8%.

Dividend investors have foreseen trouble coming for Boeing for a while now, with last year's grounding of the 737 MAX aircraft a much longer disruption to its long-term strategic plans than anticipated. The possibility of major payouts to 737 MAX accident victims and to the airlines that suffered delays in delivery of the aircraft had already put pressure on Boeing even before the pandemic struck.

Now the coronavirus has caused an unprecedented reduction in demand for air travel, and that's prompting airlines to slash their schedules and cut costs in any way they can. That could result in huge order cancellations for Boeing, and the aircraft manufacturer is seeking assistance from the federal government to cover its obligations as the outbreak continues. Unless other sources of cash appear quickly, Boeing is likely to have to cut its dividend dramatically or even eliminate it entirely in order to get any help and keep itself viable in the short term.

Losing energy

ExxonMobil has a much longer history of dividend growth, coming into 2020 with a 37-year streak of boosting its payout every year. As recently as last May, Exxon delivered another healthy dividend hike of 6% to shareholders.

Now, though, ExxonMobil faces a tough environment. Some blame the coronavirus outbreak for the standoff between Russia and OPEC that led to the recent dramatic uptick in production, with Saudi Arabia in particular boosting its output in an effort to increase its overall market share. That's sent crude prices below $30 per barrel, and that in turn will put pressure on ExxonMobil's net income. The stock is already reflecting that impact, sending Exxon's dividend yield to 10%.

ExxonMobil has made it through tough periods in the energy markets before, but it hasn't faced this combination of global economic strains. The oil giant has already seen its credit rating get downgraded in light of anticipated drops in revenue and profits, and that has it looking for ways to cut costs. ExxonMobil will be reluctant to reduce its dividend payout, but if oil prices don't recover, it might be the best choice of a bad lot.

Losing momentum

Finally, General Motors stands to be a victim in the COVID-19 pandemic. With operations around the world, GM is exposed to the entire global economy, and now even conditions in its formerly healthy North American home market look difficult. The automaker just came to terms with the United Auto Workers union, agreeing to limit production and the number of workers on production floors in order to fight the coronavirus, and that could do even more damage than anticipated in light of probable weak sales for the foreseeable future.

The pessimism about GM's prospects has pushed its stock sharply lower, and current dividend levels produce a yield of roughly 10%. GM hasn't been in dividend-growth mode lately, having kept its current $0.38-per-share payout stable since 2016. But if revenue falls sharply as a consequence of the outbreak, General Motors might have to look at reducing its payout in order to keep tough financial conditions from becoming worse.

Dealing with dividend cuts

The danger with dividend stocks is that there's no assurance they'll keep making payouts. Investors can expect Boeing, ExxonMobil, and GM to do what they can to preserve their dividends -- but it's still possible that their efforts will prove insufficient to forestall cuts.

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Stocks Mentioned

The Boeing Company Stock Quote
The Boeing Company
$125.52 (-4.95%) $-6.53
Exxon Mobil Corporation Stock Quote
Exxon Mobil Corporation
$90.65 (-1.58%) $-1.46
General Motors Company Stock Quote
General Motors Company
$35.83 (-5.96%) $-2.27

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