A Prescription for Reviving the Economy

Should companies be paying dividends right now?

As executives face a deep recession, many have cut spending, furloughed staff members and stopped buying back shares to help save cash. But many companies are still paying dividends, the subject of increasingly heated debate.

Companies have a “moral imperative” to pay dividends, Keith Skeoch, the C.E.O. of the asset manager Standard Life Aberdeen, told CNBC. On the other hand, Chris Hughes of Bloomberg Opinion is unconvinced: “A board’s duty is to the overall interest of the company, not to one portion of its shareholder base.”

The big American banks are keeping their dividends, their C.E.O.s made clear in earnings reports this week, even after they scrapped buybacks. “The way we’re looking at things, we remain committed to paying our dividend,” Citigroup’s Michael Corbat told investors.

• The Fed has given its blessing for banks to pay dividends, which will total $40 billion for the largest lenders this year. The European Central Bank and Bank of England have gone the other way, telling banks to suspend dividend payments.

• Neel Kashkari, the president of the Minneapolis Fed, wrote in The Financial Times yesterday that big U.S. banks should raise a total of $200 billion in capital as a buffer, just in case. “If the crisis turns out less serious than we fear, banks can return the capital through buybacks and dividends once the crisis passes,” he said.

There is a reckoning brewing for shareholder payouts, as the downturn exposes companies with thin financial cushions and large debt loads.

Article source: https://www.nytimes.com/2020/04/17/business/dealbook/coronavirus-drug-trials-economy.html