As interest rates have dropped to essentially zero due to global central bank interventions, bond - like proxies with juicy dividend yields, which once were highly sought off after by investors not too long ago, are now largely under scrutiny by investors questioning the validity and durability of dividend payouts.
This is the result of broad, wide-reaching dividend paths which have had some sectors harder than others. In this article, I'm going to discuss three sectors I believe will be hit particularly hard moving forward, continuing this trend.
The three sectors I believe are likely to be hit hardest from current market conditions are energy, industrials and consumer discretionary, in that order.
The energy story, particularly in Canada since 2014, has been a dismal one. Prices for oil and gas have been hit particularly hard as Chinese demand for commodities has slowed and technological advances, allowing for fracking and other extraction methodology improvements, have driven down costs.
This has allowed supply to rise to levels never previously seen. These secular trends are expected to continue over the long run, putting dividends at risk across the sector.
For industrials and consumer discretionary stocks, these are going to be directly affected by lower economic activity, making these sectors particularly vulnerable from lower cash flow levels and therefore a greater likelihood of dividend cuts.
Companies may choose to hoard cash for survival purposes rather than distributing cash to shareholders right now.
Investors worried about dividend cuts ought to assess which companies and sectors are likely to feel the effects of cash flow pressure in the quarters to come, and proceed accordingly.
Invest wisely, my friends.
