Dividends aren't mandatory -- they are paid at the discretion of a company's board of directors. Most companies don't like to cut dividends, so they generally only increase them when the business can support the hike over the long term. This seems like basic logic, but when you look at dividends with this lens, it changes the information you collect from a board's dividend decisions.
Here's a look at what dividend decisions have been saying about Walgreens Boots Alliance (WBA 0.57%), Nucor (NUE -0.26%), Steel Dynamics (STLD 0.76%), Chevron (CVX 0.37%), and Stanley Black & Decker (SWK 0.99%).
Walgreens: The wrong kind of change
Walgreens is one of the largest drugstore operators in the United States. The industry has been in a state of flux lately as it looks for new ways to grow. Walgreens tried its hand at benefits management, but that didn't work out. Then it shifted, along with its rivals, to operating healthcare clinics.
The future is still a bit uncertain, noting that there was a recent CEO change during what is a pivotal time for the company. However, dividend investors should have noted the bad omens in mid-2023 when Walgreens didn't increase its dividend at the normal interval.
Image source: Getty Images.
While the dividend wasn't cut at that point, it was not increased, and that was a material change in direction for a company that had a long history of regular increases behind it. Add in the massive business shifts taking place and a new CEO and it shouldn't be any surprise that the dividend was at risk. The cut that was announced in early 2024 was at least partly signaled by the dividend decisions that were made in 2023.
Nucor works in steps, Steel Dynamics is growing fast
Shifting to Nucor and Steel Dynamics, two prominent U.S. steel makers, there are two different trends to consider. Nucor's dividend, for example, has tended to grow slowly for years on end. But then it jumps materially, usually after the company opens a material plant or facility. Essentially, the dividend is signaling a step change in the business, for the better.
STLD Dividend Per Share (Quarterly) data by YCharts
Smaller peer Steel Dynamics, meanwhile, had been increasing its dividend at a rapid clip year in and year out. That has been a clear indication that this company remains in a growth phase, which isn't exactly shocking given that it is much smaller than industry giant Nucor. At some point, Steel Dynamics' growth will slow, as is normal for a growth company. However, the dividend paths here are clearly indicating the different stages of these two steel competitors.
Chevron sails along, Stanley Black & Decker backs the turnaround
Companies generally have to live through good periods and bad ones, as Walgreens shows. However, a dividend can help you hang on through the rough patches, too, and that has nothing to do with the income you collect. For example, Chevron has increased its dividend annually for over 30 years, and right through multiple energy industry downturns. In 2020, when oil prices plunged due to the economic shutdowns used to slow the spread of the coronavirus, it hiked its dividend. It was a clear sign to investors that Chevron expected to sail through yet another industry downturn without a problem.
CVX Dividend Per Share (Quarterly) data by YCharts
Stanley Black & Decker's story is a bit more troubling. The company's business did well during the pandemic period, but then it hit a wall as inflation took hold and supply chains got snarled. It has been selling assets to trim debt, rationalizing its business, and cutting costs. Earnings have plunged, but the dividend has continued to rise. The last two dividend increases were nothing but a token penny per share per quarter, but they were made exactly on the normal schedule.
The takeaway this Dividend King likely wants investors to leave with is that it is struggling today, but still believes its long-term future remains bright. That's a vastly different story than the one Walgreens was telling shareholders.
Things change, but dividends are always important
There's no reason at all to believe that any of the dividend growers noted here would be expected to cut their dividends in the near term. But there's also the chance, even if it is remote, that they do cut them because financial situations change all the time.
However, for dividend investors who pay close enough attention, dividend changes (or the lack thereof) can provide valuable clues about how a board of directors is thinking. Walgreens, Nucor, Steel Dynamics, Chevron, and Stanley Black & Decker are all examples of this. At the end of the day, you shouldn't just sit back and collect dividend checks, you should view them as another tool for keeping tabs on your investments.
