Income Investing: Weekly Dividend Cuts

Rocky Mountain Dealerships (TSX:RME) and Canwel Building Materials (TSX:CWX) were the only TSX-listed companies to announce dividend cuts last week.

| More on:
Economic Turbulence

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn moresdf

The pace of dividend cuts and suspensions is happening at a record pace. Since the start of the pandemic, more than 80 companies have either cut or suspended dividends. Leading the way are energy stocks. The sector is facing multiple headwinds, including pipeline constraints, low oil prices, and pandemic-mitigation efforts. 

Income investors are rightfully nervous — this is especially true of those who rely on stable and steady dividends in retirement. The good news is that dividend cuts and suspensions are beginning to slow. 

Two weeks ago, there was only one TSX-listed company that announced a dividend cut. Last week, Canwel Building Materials Group (TSX:CWX) and Rocky Mountain Dealerships (TSX:RME) were the only Canadian stocks to either cut or suspend dividends.  

Old New Percentage Date
Canwel Building Materials Group $   0.14 $0.12 -14.29% 06/15/2020
Rocky Mountain Dealerships $0.06 $0.015 -87.76% 06/16/2020

A steep dividend cut

On Tuesday, Rocky Mountain Dealerships announced that it was cutting the dividend to $0.015 per share — an 88% cut. It’s worth noting that the company pre-announced its intentions to cut the dividend back in April. 

On April 29, the company said it would slash the dividend from $0.1225 per share to “no more than $0.06,” which would have resulted in a 51.02% cut at minimum. However, the cut was much larger than anticipated. The move will generate cash savings of approximately $8.3 million on an annualized basis.

Since the start of the pandemic, there have been a handful of companies that have cut dividends more than once. Each time, it has resulted in a complete suspension of the dividend. Although it is technically not a second cut, it is likely that Rocky Mountain will follow suit, unless the short-term prospects improve in a meaningful way.

An industry first

Income investors who have investments in the Construction and Home Building industry have thus far escaped the pandemic relatively unscathed. That is, until Canwel Building Materials became the first to announce a dividend cut. 

On Monday, the company announced a dividend of $0.12 per share, down from $0.14 previously. The 14.29% decrease in the quarterly dividend will not take effect until the third quarter. 

The move is somewhat surprising when one considers the company experienced a 9% increase in sales from January through May. Despite the current pandemic, the company’s business model is proving to be quite resilient. 

It seems the reduction in the third quarter dividend is being made out of an abundance of caution. There currently exists considerable uncertainty, and Canwel’s board of directors believes it is a “prudent measure to enhance (their) capital and financial flexibility.”

Are these income stocks buys today?

Neither of these companies have sustained a prolonged dividend-growth streak. Rocky Mountain Dealership is a micro cap with a negative five-year revenue growth, and it has averaged low, single-digit earnings growth. Considering the current uncertainty, the company is more vulnerable to poor economic conditions. 

For its part, Canwel has actually performed quite well throughout the pandemic. Although the dividend cut is disappointing, investors can’t fault a company for taking a cautious approach. Trading at 19 times earnings and only 1.06 times book value, the company is decently valued and is the better option of the two. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Mat Litalien has no position in any of the stocks mentioned.

More on Dividend Stocks

growing plant shoots on stacked coins
Dividend Stocks

5 Dividend Stocks to Buy With Yields Upwards of 5%

These five companies all earn tonnes of cash flow, making them some of the best long-term dividend stocks you can…

Read more »

funds, money, nest egg
Dividend Stocks

TFSA Investors: 3 Stocks to Start Building an Influx of Passive Income

A TFSA is the ideal registered account for passive income, as it doesn't weigh down your tax bill, and any…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

3 of the Safest Dividend Stocks in Canada

Royal Bank of Canada stock is one of the safest TSX dividend stocks to buy. So is CT REIT and…

Read more »

Growing plant shoots on coins
Dividend Stocks

1 of the Top Canadian Growth Stocks to Buy in February 2023

Many top Canadian growth stocks represent strong underlying businesses, healthy financials, and organic growth opportunities.

Read more »

stock research, analyze data
Dividend Stocks

Wherever the Market Goes, I’m Buying These 3 TSX Stocks

Here are three TSX stocks that could outperform irrespective of the market direction.

Read more »

woman data analyze
Dividend Stocks

1 Oversold Dividend Stock (Yielding 6.5%) to Buy This Month

Here's why SmartCentres REIT (TSX:SRU.UN) is one top dividend stock that long-term investors should consider in this current market.

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

Better TFSA Buy: Enbridge Stock or Bank of Nova Scotia

Enbridge and Bank of Nova Scotia offer high yields for TFSA investors seeking passive income. Is one stock now undervalued?

Read more »

Golden crown on a red velvet background
Dividend Stocks

2 Top Stocks Just Became Canadian Dividend Aristocrats

These two top Canadian Dividend Aristocrats stocks are reliable companies with impressive long-term growth potential.

Read more »