Hundreds of companies cut, canceled, or suspended their dividend payments in 2020 due to the COVID-19 pandemic. This list includes several huge businesses, including over 40 members of the S&P 500 that suspended their payments as sales trends collapsed beginning in March.
Growth trends improved significantly for some of these companies, and management responded by turning the dividend spigot back on in a move that might suggest solid overall returns for shareholders ahead.
With that potential in mind, let's look at two previously slashed dividends, from TJX Companies (TJX 0.23%) and Estee Lauder (EL +4.11%), that look attractive as they're set to grow again in 2021.
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1. TJX Companies
TJX Companies entered 2020 on a glide path toward establishing itself as a Dividend Aristocrat. The off-price retailer had notched 23 consecutive years of continuous payments and annual increases, or just two years shy of the official 25-consecutive-years-of-dividend-growth threshold.
That momentum came to an abrupt halt when COVID-19 forced the closure of its entire store base for several weeks. The apparel and home goods specialist, unlike some rivals like Target and Walmart, didn't fall in the "essential retailing" niche, and so its sales plunged during pandemic-related closures. TJX Companies suspended both its dividend and its stock buyback spending in response, but losses still amounted to $0.20 per share through the first nine months of 2020 compared to a $1.86 per share profit a year earlier.
CEO Ernie Herrman and his team said in mid-November that the worst was likely behind the retailer, and they backed those comments up by officially reinstating the dividend -- while boosting it 13% in early December. TJX Companies' next earnings update will come in late February when the company closes its fiscal 2020 and provides its first outlook for the new year.
Investors are bracing for another quarter of sales declines in that report. However, the moderating pace of drops suggests a return to revenue growth in 2021 and many more dividend increases ahead for this strong business that just navigated through an unusually rough operating environment.
2. Estee Lauder
The makeup industry took a hit when people started reducing the social time they spent outside of the house. Estee Lauder's sales plunged 32% in the fiscal period that ended in June, and the retailer swung to a $543 million loss compared to a gain of $216 million a year earlier. It's no surprise, then, that CEO Fabrizio Feda and his team suspended the dividend payout even as they took on billions of dollars in new debt.
But trends improved dramatically since late June. The makeup and skincare giant reported just a 9% year-over-year sales decline in the following quarter. Operating income fell by the same margin but landed at a comfortably positive level of $705 million.
Estee Lauder still faces demand pressures that might keep a lid on growth for much of the next year. Yet its finances have improved enough to allow management to reinstate the dividend -- at a 10% higher rate. Its innovative beauty launches will likely be the key to any significant growth rebound that keeps it ahead of the wider industry, so investors will be watching market share trends closely in 2021.
Long-term growth outlooks are good
There are certainly more stable dividends that investors can search for, including many stocks that have consistently raised payouts for 50 years or more. But 2020 was an unusually volatile year that disproportionately affected some industries and retailing niches. So, you might want to look past these temporary pauses by Estee Lauder and TJX Companies and focus instead on their attractive long-term growth outlooks.
