A pronounced economic slump sparked by the coronavirus outbreak has imperiled a popular investment strategy: buying dividend stocks.
These stocks have traditionally been highly coveted during periods of market turbulence because they provide shareholders a dividend or a guaranteed return, typically paid out annually out of the company’s profits or reserves.
That investment approach is now floundering due to the coronavirus pandemic as many companies have suspended dividend payments and scrambled to conserve cash given that their revenues have evaporated and swooning financial markets have fueled worries over their ability to repay debt.
Investors are concerned.
“Companies with high sustainable cash flow, in traditional yielding sectors such as telecom, infrastructure & real estate investment trusts, are not expected to cut dividends, so when they do, it is a shock to investors,” Sat Duhra, co-fund manager Asian dividend income strategy at asset manager Janus Henderson told CNBC.
In the last few days, large financial institutions such as HSBC and Standard Chartered have cancelled plans to make dividend payments for 2020. Airbus and Rolls Royce have decided to do the same.
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