Last year was rough for a lot of income investors. Folks buying into dividend stocks under the assumption that they are less risky got burned at both ends. Many high-yielding names in troubled consumer-facing industries nixed their payouts at the first whiff of the pandemic. Many of the stocks would go on to tumble anyway.
AMC Entertainment Holdings (AMC 1.92%), Carnival (CCL 2.67%) (CUK 2.56%), Royal Caribbean (RCL 1.09%), American Airlines Group (AAL 1.76%), and Disney (DIS -0.65%) paused their distributions in 2020. All but one of those stocks closed out the year with heavy declines. I don't see any of them returning money to shareholders in 2021.
It's amazing to see where some of last year's hardest-hit stocks would be if they were still making dividend payments. AMC's quarterly distributions were $0.20 a share through 2019. At Tuesday's close, that would translate to a 40.4% yield.
You don't need to sit through a movie to know how this one ends. The dividend isn't coming back. Folks haven't returned to the multiplex. Most of AMC multiplexes are now open, but the $61.1 million in ticket sales that the entire industry collected in North American last month was just 5% of the box office receipts it raked in for the previous December. Studios have turned to other distribution channels, and things may never be the same for the reeling exhibitors.
Forget any notion of things returning to normal even after the pandemic fades to black. AMC is going to need every penny it gets in 2021 if it wants to stay alive. It's the only one of these five companies that has a fair chance of declaring bankruptcy before the end of the year even with recent liquidity-boosting moves.
Carnival and Royal Caribbean
I may as well cover Carnival and Royal Caribbean at the same time since they are (pardon the expression) in the same boat. Cruise line operators may seem to be in worse shape than your local multiplex because at least your hometown movie theater is still running its business. However, we know that cruise lines won't be making just 5% of what they were making before, once they are cleared to start sailing again. There's no digital distribution eating into the pent-up demand for cruise vacations.
We're still not sure when cruise lines will get back to business. The starting line keeps getting pushed out. But it should happen at some point this year. Analysts see a return to profitability as early as next year.
Don't wait up for the dividend to come back right away. At current share prices, Carnival and Royal Caribbean would be yielding 9.7% and 4.3%, respectively, if they were still paying the old rate, but they have bigger fish to fry right now. The two companies have taken on a lot of debt, and any positive cash flow will likely go to ease their leveraged ways.
The industry has also had to issue a ton of new stock over the past year, and that means dividing disbursements into more outstanding shares. It will be probably take a couple more years before either company is comfortable cutting dividend checks again.
American Airlines Group
Airlines are literally up in the air, but the same can be said in the figurative sense about their near-term prospects. American Airlines Group saw its revenue plunge 86% in the second quarter, improving only to a 73% year-over-year decline in its latest report. Demand for flying is down to essential travel. Your globe-trotter interests and faraway business meetings will have to wait until the new normal becomes a newer normal.
American Airlines was never a magnet for income investors, with its mere $0.10 a share in quarterly distributions, but that rate would translate to a reasonable 2.6% payout now. Analysts see American turning the corner of profitability by late 2022, but there's just no hope for it to reinitiate its distributions since airlines stocks were on the receiving end of a $25 billion government bailout in the springtime of last year.
I'll save the only one that I'm not sure about for last. Unlike the four earlier companies I singled out, Disney stock moved higher in 2020. It even hit new all-time highs last week. The media giant is also the only one of these companies that most analysts see returning to profitability in the current fiscal year.
Disney's current yield would be just 1% based on the suspended rate, but even that meager payout doesn't make sense right now. It would be a bad look with all of the layoffs at its theme parks and even ESPN.
Disney also committed last month to heavy content expenditures for Disney+, and that's what some analysts feel is a better use of the $3.2 billion it returned to shareholders last year. The stock hitting new highs recently proves that Disney doesn't need to play nice with income investors to win the Wall Street game. The House of Mouse is going to pay itself first in 2021.
The writing is on the zero-yield wall: AMC Entertainment, Carnival, Royal Caribbean, American Airlines, and even Disney aren't going to be dividend stocks in 2021.