The market needs to brace itself for more dividend cuts. Investors need to tread carefully investing in retail REITs, banks, or energy. If you’re investing in the spaces, it’s likely that dividends aren’t your top priority. A multi-year turnaround plan sounds plausible.
Wells Fargo Cutting Its Dividend this Month
It’s expected that Wells Fargo (NYSE:WFC) will partially cut its dividend in Q3 to comply with the Federal Reserve’s stress tests. It will announce the new dividend when it reports quarterly results on July 14.
In the last great recession triggered by a financial crisis about 11 years ago, the stock traded as low as a P/E of 5 based on normalized earnings. That would imply a buy target of about $18 — if you’re looking for a multi-year turnaround play.
Since Wells Fargo is the first of the big U.S. banks to cut its dividend, you might prefer other big U.S. banks that are holding their dividends steady for now — for example, JPMorgan (NYSE:JPM), Bank of America (NYSE:BAC), Citigroup (NYSE:C), and Goldman Sachs (NYSE:GS). To be super conservative, consider buying these names when Wells Fargo hits the $18 target.
Simon Property Cut Its Dividend By 38%
Simon Property Group (NYSE:SPG) cut its quarterly dividend from $2.10 to $1.30 per share. Many of its retail properties were temporarily closed due to the COVID-19 pandemic. Although most are re-opening, a new wave of COVID-19 can force it to close them again.
SPG now yields 7.5%. If you believe COVID-19 will come to pass, the economy will recover, and SPG’s premium retail properties will prevail, you might buy some shares under $60, which is roughly 5.5x normalized FFO.
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Disclosure: As of writing, we own shares of SPG.
Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.
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