Hi Guys,
I’m a novice in finance, an an engineer by profession, I only started investing in stocks less that 3 weeks ago. My interest is dividend investment so I’m building a portfolio that purely focus on dividend paying stocks. I began to think about airlines in particular and realised that most of these will surely need some kind of government bailouts of some sort. Surely if government bails a company out, will that automatically mean the company won’t be allowed to pay dividends for some time. It seemed illogical to me that a company that escapes collapse on account of public funds would keep rewarding shareholders in dividends.
I kept researching and found this article written yesterday in Seeking Alpha in relation to Boeing:
(((((On Saturday, the CEOs of 10 US airlines and the head of Airlines for America, the industry’s trade group, [signed a letter to congressional leaders]. In it, they agreed to “eliminating stock buy backs over the life of the loans” and “eliminating stock dividends for the life of the loans” if the industry receives at least $29 billion in loans or loan guarantees.)))))
Is this what generally happens when companies are bailed out and should this be taken as a serious concern for dividend investment.
Dividends would be the least of your concern when a company is accepting a government bailout. There is a possibility that shareholders will be completely wiped out, or at the very least, the stock may be trading for pennies on the dollar after the fact for years to come.
With that said, you are free to do as you will, however, tread very carefully with these hard-hit industries. There are plenty of bargains to be had, why risk your money on airlines?
Thanks, I’m worried now. In that case I’ll have to do some research to see which stocks qualify for a bailout and which ones don’t. So, the ones you’re saying “there are plenty of bargains to be had”, are they the REITs generally, hard to measure the resilience of any stock if the measures against coronavirus go on for many more months
That is something you need to assess for yourself. A piece of good advice, especially right now, is to look for companies with healthy balance sheets. Look for low debt and high cash. These are the ones that can weather this crisis without too much trouble.
If you want relatively safe dividends right now, look at the telecommunications and utilities sector. REITs are also good, however, depends on the type of REIT right now. Realty Income (O), for instance, looks attractive. Their portfolio is quite diversified and relatively resilient to this crisis, however, mall REITs such as Simon Property (SPG) will be in trouble, at least until the pandemic blows over, as all of their properties are currently shut down. Consumer staples is also a defensive sector that does great in a weak economy. You will find fewer bargains there, as companies like Wallmart (WMT) are reaching all-time highs right now.
Make sure you diversify across all sectors and do your due diligence. There are plenty of great companies out there that are getting hammered with the general market.
Just thought I would chime in here, possibly look for ETF’s too, thereby hedging your industry and sector risk nicely. Global / US / UK or emerging markets depending on your risk tolerance.
REIT’s are a good alternative, but just be mindful that your investments will still have industry and sector risk (housing).
I would plan for a lengthy recovery for this stock market crash. ETA 1 - 5 years could be quite possible to return to previous highs. Play the long-game.
This is just my take on the market right now. Invest as you see fit.
