The collapse in commodity prices, weaker-than-expected global growth, and tightening capital markets have taken their toll on companies’ ability to pay dividends. High-yield issuers have been hit particularly hard, with the turmoil in this segment of the bond market jacking up borrowing costs significantly.
Investors’ appetite for dividends has become all the more ravenous with the Federal Reserve keeping interest rates near zero for an extended period. And with so many retirees living off their investments, the zeal for yield appeals unlikely to wane anytime soon.
Many companies in cyclical industries pay generous dividends to expand their investor base; with survival on the line, these payouts have become surplus to requirements.