• U.S. stocks’ remarkable recovery that began on March 23 picked up steam this week as investors cheered the prospect of a gradual reopening of the U.S. economy. Markets received an additional boost as reports emerged of a possible treatment for the coronavirus and the Fed reasserted its support for the economy.
  • Underneath the strong market rebound, however, economic data shows that the U.S. economy continues to face considerable challenges. At -4.8% in Q1 2020, U.S. GDP came in at its lowest figure since Q4 2008, and economists expect a much larger decline in Q2. Meanwhile, The Conference Board reported a nearly 32-point decline in consumer confidence, driven by a 90-point plunge – the largest ever – in consumers’ assessment of current business and labor market conditions.1  
  • Against this backdrop, companies have increasingly turned to cutting or suspending their dividends as they look to preserve cash. With approximately $70 billion in lost dividends, Bloomberg estimates that more companies have cut dividends year to date than in the previous 10 years combined.2 Continued economic stress poses the possibility that significantly more companies could follow suit in the coming quarters.
  • This is important because roughly 50% of the S&P 500’s total return over the past 30-plus years has come from reinvested dividends, as the chart highlights.3
  • The large majority of companies will likely continue to pay all of their dividends throughout the crisis. Yet a marginal or notable decline could be a sign that investors may need to temper their total return expectations despite stocks’ recent bounce.

1 The Conference Board, http://bit.ly/32vCXCP.
2 Bloomberg, “Money Stuff: It’s a Good Time to Cut Dividends,” https://bloom.bg/3bQT1Dc.
3 Bloomberg Finance, L.P., for the period from January 1988 through March 2020.


This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice, and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. FS Investments cannot be held responsible for any direct or incidental loss incurred as a result of any investor’s or other persons reliance on the opinions expressed herein. Investors should consult their tax and financial advisors for additional information concerning their specific situation.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.

All investing is subject to risk, including the possible loss of the money you invest.