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Save cash and reward shareholders: The case for stock dividends

Thought Leader: Sheila Bair
May 27, 2020
Source: Link

By Sheila Bair (original source Yahoo Finance)

“Dividends. To cut, or not to cut. That is the question confronting companies throughout the globe as they struggle to conserve enough cash to keep themselves going during a deepening economic downturn.

Many household names– Marriott, Ford, Boeing–have already eliminated dividends. Total cuts this year are estimated to be as high as $493 billion worldwide, representing a one-third drop from last year’s payouts. This is in stock owners’ long-term interests as dividend cuts will preserve scarce cash necessary to keep their companies afloat and operational. Importantly, most families will feel none of the pain as about half have any exposure to the stock market, and wealthy investors can presumably weather several quarters of skipped dividends. 

Yet there are retirees and other middle class families who do depend on those dividend checks to cover living expenses. For them, dividend cuts can create hardship, so it is worth asking whether there is an alternative.

Paying dividends in shares, instead of cash, is one way to address the needs of this group.”

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