I’ve been fairly lucky to date with respect to dividend cuts/suspensions in my Portfolio.

In the past few weeks, plenty of companies have taken the action to conserve cash to provide greater financial flexibility in the face of all the economic impacts resulting from the COVID-19 pandemic.  As this week started, the worst of it for my Portfolio was a couple of dividend freezes on the part of Exxon Mobil (XOM) and Main Street Capital (MAIN).  I can live with that.

However, as expected, things are starting to get worse.

One of my Portfolio companies that was at the forefront of my dividend cut/suspension watchlist was The Cheesecake Factory (CAKE).  This casual dining restaurant operator was forced to shutdown its restaurants, resulting in the loss of the majority of its revenue.  Many of its locations are positioned in malls and retail centers, too, which may be some of the last locations to return to “normal”.  With the release of this week’s earnings report came news that the CAKE dividend was being suspended.  Ouch.  Not unexpected to be sure, but painful nonetheless.

I was also on high alert for a dividend cut/suspension from The Walt Disney Co. (DIS), and it came on the same day, too.  DIS announced they wouldn’t be paying the 1H dividend in July.  Given that so many of the businesses for DIS were shut down (theme parts, cruises, movie production, no sports for ESPN), it wasn’t a surprise, but again, no fun.

Just a day later, Kontoor Brands (KTB) suspended their dividend as well.  Yet another company that you had to believe was in trouble.

So, three dividend suspensions in a matter of days.  Of the three, CAKE provides the largest dividend for me.  The dividends for KTB and DIS are my 2nd and 3rd smallest in my Portfolio, so those didn’t sting as much.

So what did I do with these stocks?  This is a dividend portfolio, so the companies should deliver dividends, right?  Well, it’s not that simple.

In the case of CAKE, with their near-term prospects not looking too good, I decided to sell my entire position.  I did some tax loss harvesting (using the capital loss to offset some of the capital gains I’ve got on the books for 2020), and then reallocated the sale proceeds to other Portfolio holdings (as you will see).

As for DIS, I like the company and view it as a long-term winner, even if it’s in the same boat as CAKE with regard to near-term prospects.  Since the dividend loss isn’t too substantial, I’m inclined to hold my shares and wait for better days.

That leaves KTB.  It’s the smallest position in my Portfolio by value.  I’ve talked in the recent past about either making it a larger position in my Portfolio, or selling the few shares I have and moving on.  Well, after the dividend suspension, I think the answer it pretty clear for me.  While I haven’t sold KTB yet, it shouldn’t be too long before I take action.

With the sale proceeds from CAKE, I added to four existing positions in my Portfolio, trying to focus on stronger companies than the one I just let go.

Let’s check out all the transactions and get some details, too…

 

The Cheesecake Factory (CAKE)

I had only initiated my CAKE position back in late January.  I liked the direction the company was headed and the opportunity for the share price to grow with its earnings.

However, I certainly didn’t see a pandemic coming, nor the resulting economic fallout.  As it turns out, CAKE happened to have one of the worst possible businesses to ride through the pandemic.  Unfortunately, the recovery looks like it might take quite a long time, and with no dividend to collect while I wait, the choice to sell was pretty easy for me.

On 5/6/20, I sold all 101.722 shares at $20.09/sh.

After the SEC fee, the sale proceeds were $2,043.54.  At my sale price, CAKE shares yielded 7.17%.  This hefty yield was brought about by significant share price declines.

The sale resulted in a short-term capital loss of $1,842.46.

A reduction of $146.48 in annual forward dividend income also occurred with the sale.  I was going to lose this in the short-term anyway, thanks to the dividend suspension.

 

Now let’s see how I reallocated the CAKE sale proceeds…

 

General Dynamics (GD)

I made a purchase of GD about 2 weeks ago when the price dipped under $130.  In my most recent Portfolio Thoughts post, I said I’d target a price of $115 to $120 for another possible GD purchase.

Well, I jumped the gun a bit and bought sooner than I anticipated.  GD had fallen only about 5% from my previous purchase level (as opposed to the approximate 10% drop I had targeted) when I decided to add some more shares.

This GD purchase was actually at a lower price than any of my previous GD share additions.  So, it was a good average down of my cost basis.

On 5/6/20, I purchased 5 shares of GD at $123.40/sh., for a total of $617.00.  My GD share total has risen to 45.622 shares.

The stock yielded 3.57% at my purchase price (above my current Portfolio average of 3.22%).

This purchase resulted in the addition of $22.00 in annual forward dividend income… starting to recoup some of the amount that was lost with the CAKE sale.

With this purchase, my GD position has grown to the 32nd largest in my Portfolio, just behind XOM and slightly ahead of Hormel Foods (HRL).

 

Automatic Data Processing (ADP)

Here’s another Portfolio position I’ve been looking to make bigger, especially given its quality.  While the price of ADP continues to drift lower, I’m getting my opportunity to add.

My last ADP purchase was on 3/11/20, right in the thick of the March downturn.  Yet, the price I paid with this purchase was slightly lower.  It seems safe to say that ADP hasn’t snapped back as quickly as some other stocks.

My ADP purchase here was also at a lower price than any of my previous ADP share additions.  So again, it was a nice average down of my cost basis.

On 5/6/20, I purchased 5 shares of ADP at $145.80/sh., for a total of $729.00.  My ADP share total now stands at 40.245 shares.

The stock yielded 2.50% at my purchase price.  This is roughly three quarters of a percent below my average Portfolio yield.

This purchase resulted in the addition of $18.20 in annual forward dividend income.

With this purchase, my ADP position is now the 28th largest in my Portfolio, right behind Texas Instruments (TXN) and just ahead of Comcast (CMCSA).

 

Wells Fargo & Co. (WFC)

Of the four adds I made with the CAKE proceeds, here’s the one that appears furthest down on the quality scale.  That’s the primary reason it received the smallest amount of capital investment of the group.

WFC looks quite beaten down here.  While lots of financial stocks have slumped in recent weeks, including the bank majors, WFC seems to be faring poorly on a comparative scale.  WFC had some issues before the pandemic came around, so perhaps this is no surprise.  However, if WFC can manage through the tough times, the opportunity exists for some good profits over time.  And while I wait for that recovery, WFC is sporting a rather large yield (this assumes it can at least maintain that dividend for now).

My initial WFC position was only established this year.  The position is still small overall, but it’s growing as I take advantage of the lower share prices.

My last WFC purchase was about 3 weeks ago, but I add here again at a lower price… a price lower than any of my previous WFC share additions (I’m starting to sound like a broken record).  Of course, this meant an average down of my cost basis.

On 5/6/20, I purchased 15 shares of WFC at $25.80/sh., for a total of $387.00.  My WFC share total has now reached 115.627 shares.

The stock yielded an astounding 7.91% at my purchase price… which is easily more than double my current Portfolio average.

This purchase resulted in the addition of $30.60 in annual forward dividend income.  This was my biggest forward income boost, despite the smallest investment (ah, the power of the high yield).

With this purchase, my WFC position has become the 43rd largest in my Portfolio, close behind W.P Carey (WPC) and ahead of fellow bank TCF Financial (TCF).

 

Comcast (CMCSA)

We’ve made it to the last of my four purchases.  It hasn’t been too long since I’ve added to my CMCSA position (January), but with the price so much lower now, I couldn’t help but add some shares.

I’m underweight the Communication Services sector, so acquiring some shares here helps rectify some of the discrepancy with my target weighting.

In this case, my CMCSA purchase was not at my lowest share price ever… but it was close… and it was about a $1 or so lower than my average share cost, too.

On 5/6/20, I purchased 15 shares of CMCSA at $35.40/sh., for a total of $531.00.  My CMCSA share total now stands at 165.605 shares.

The stock yielded 2.60% at my purchase price.  That is below my average Portfolio yield.

This purchase resulted in the addition of $13.80 in annual forward dividend income.

With this purchase, my CMCSA position settled in as the 29th largest in my Portfolio, right behind ADP and ahead of Quest Diagnostics (DGX).

 

Summary

A trio of dividend suspensions in my Portfolio got me to initiate some change.

With the near-term outlook for CAKE not looking too sweet (yes, I went there), and no dividends in sight, I decided to sell.  That kicked off a handful of purchases I made to re-deploy the sale proceeds, and recoup some of the lost dividend income.

While I wasn’t able to replace all of the lost income, I believe my Portfolio stepped up its quality.  In addition, I hope the dividend safety improved as well.

When all was said and done, I’d added to four existing holdings: GD, ADP, WFC & CMCSA.

Unfortunately, the CAKE sale generated a significant capital loss, but I’ll use it to offset the significant capital gains I already have on the ledger in 2020.

The result of the five transactions (1 sale, 4 purchases) was a net investment into my Portfolio of $220.46.  However, my annual forward dividend income declined by $61.88.

Throw in the lost dividend income of $44.00 from the DIS dividend suspension, and the $25.45 in lost dividend income from the KTB dividend suspension, and that’s an additional forward dividend income decline of $69.45 that I plan to address… just not right away.

With the elimination of the CAKE position, the number of stocks in my Portfolio was reduced to an even 50.

 

Have you been hit recently with some dividend cuts or suspensions?  If so, which ones have stung the most?  Please share in the comments!