April 16, 2020
Authored by: Vicki Westerhaus, R. Randall Wang and Rob Endicott
As COVID-19 moves across the U.S. decimating revenue sources, companies in severely impacted industries, including hospitality, retail and travel, among others, rushed to announce that quarterly dividend payments would be deferred, delayed, suspended or revoked, as the case may be. Many simultaneously announced drawdowns on credit facilities, employee furloughs or layoffs and salary reductions, presumably as justification for the dividend change.
Companies with strong cash reserves, on the other hand, so far generally appear to be moving forward with regular dividend payments. Their decision to continue to pay dividends as they are able despite the pandemic helps project stability in the U.S. securities markets and arguably strengthens investor relations, especially among retirees who depend on dividend income.
As economic fallout from the pandemic continues and the ripple effect of stay-at-home orders begins to impact nearly all businesses in some manner, companies may want to include disclosure forewarning that the board of directors continually monitors market conditions and will continually evaluate the company’s quarterly cash dividend program, balancing it with the company’s capital and financial strength needs.
In recent ISS Guidance regarding COVID-19 issues, ISS stated that this year it will support broad discretion for boards that change customary dividend practices and consider whether boards disclose plans to use any preserved cash from dividend reductions to support and protect their business and workforce.
Glass Lewis also recently recognized the need for flexibility during the pandemic, noting the reality of