The ugly recession and job losses ahead are creating a deep depression ahead. Companies with a weak balance sheet and poor cash flow ended a stock buyback and/or suspended dividends. Boeing (NYSE:BA) is an example of a weak firm. But two firms are bucking the trend: TD Bank (TSX:TD) and BP plc (NYSE:BP).
TD is a Canadian-based firm that operates internationally, including in the U.S. Its CEO re-affirmed its dividend. It said on Bloomberg that “TD has no plans to change its dividend policy at this time.”
TD still has some major headwinds ahead: it answered to 60,000 mortgage deferral requests. For now, its loan portfolio does not have material deterioration. The Canadian government’s economic response plan will delay any defaults.
In the energy sector, the dramatic drop in energy prices sent companies like BP stock to new lows. Even though cash flow levels will drop, BP will cut no jobs.
Instead, it will reduce capital spending. It had $32 billion in cash and undrawn facilities. So, the $2.5 billion in cash cost savings should ensure dividends continuing. This will deter investors from selling the stock.
Even though BP stock staged a sharp v-shaped bounce from the March lows, investors may want to buy BP at these levels. The dividend yield is too high to ignore.
Disclosure: the author owns BP stock.
