Political Uncertainty: Effects on Dividend Stocks

Historical Performance During Political Uncertainty

Dividend stocks have historically faced significant challenges during periods of political uncertainty, with companies like McDonald's, Coca-Cola, and PepsiCo reporting impacts on their operations due to geopolitical tensions and economic volatility. However, firms like Johnson & Johnson and Procter & Gamble have demonstrated resilience and continued growth despite these uncertainties.

"While we may face challenges and uncertainties in any of the markets in which we operate, such challenges and uncertainties are often heightened in developing markets, which may entail a relatively higher risk of political instability, economic volatility, crime, corruption and social and ethnic unrest." --- (MCD, sec filing, 2024/Q1)

"To capture value, we're investing in several highly anticipated activations, including music festivals, the Euro 2024 Football Championship, and of course, the Paris Olympics. We're increasing our focus on brands with strong momentum across our total beverage portfolio, including Fuze Tea and Powerade, and on promising sparkling innovations such as Coke Lemon and Reformulated Sprite. In Eurasia and Middle east, geopolitical tensions and economic uncertainty continue to impact our business." --- (KO, earning call, 2024/Q2)

"In addition, volatile economic, political, social and geopolitical conditions, civil unrest and wars and other military conflicts, acts of terrorism and natural disasters and other catastrophic events in certain markets in which our products are made, manufactured, distributed or sold, including in Argentina, Brazil, China, Mexico, the Middle East, Pakistan, Russia, Turkey and Ukraine, continue to result in challenging operating environments and have resulted in and could continue to result in changes in how we operate in certain of these markets." --- (PEP, sec filing, 2024/Q1)

"One of the things that I think is important to reflect on, the quarter’s important and we reflected a lot on that today, which is appropriate, but it’s also important to step back and say, how is this strategy working, not just for the quarter but for longer periods of time, as I mentioned in my remarks, pre-COVID, during COVID, post COVID, inflation, pricing, and then the big geopolitical struggles that we’re all engaged in currently." --- (PG, earning call, 2024/Q4)

"And so we think regardless of any pricing dynamics in the other markets and changes in political parties and things like that, we think that we're in a very good position to be able to continue to advance our innovation and to continue to grow our business, at above market rates." --- (JNJ, conference, 2024/06/12)

Sector-Specific Impacts

Political uncertainty significantly impacts the energy and financial sectors. Chevron and ExxonMobil highlight how government policies influence investment and operational strategies. JPMorgan Chase and Bank of America emphasize the adverse effects of political developments and economic uncertainties on financial performance and credit costs, respectively.

"And so we're pleased with both of these. There are markets, maybe to your point about economics that are in some ways heavily influenced by government policy, be it the renewable fuel standard and the Low Carbon Fuel Standard, which affect renewable fuels or some of the things in the investment or the inflation reduction act that affect hydrogen." --- (CVX, earning call, 2024/Q1)

"For all of our success, we're not satisfied. We continue to see a portfolio of opportunities to significantly grow value. We plan to continue investing in our business this year to grow our portfolio of competitively advantaged assets, further shift our product mix towards higher value performance products and achieve additional emissions reductions." --- (XOM, event transcript, 2024/05/29)

"It directly impacts Alphabet's reputation, operational focus, and ultimately, its long term financial performance. NOPC's proposal seeks to remedy this issue by asking members of the board of directors to disclose their political and charitable contributions, which will give shareholders greater insight into any personal biases that drive decisions that appear publicly to be politically left wing culture, exemplified most by the negative reaction among its senior leaders to the election of President Trump in 2016." --- (GOOG, AGM, 2024/06/07)

"(e) Impact recognized through OCI. COUNTRY RISK MANAGEMENT The Firm, through its LOBs and Corporate, may be exposed to country risk resulting from financial, economic, political or other significant developments which adversely affect the value of the Firm’s exposures related to a particular country or set of countries." --- (JPM, sec filing, 2024/Q2)

"The uncertainty around interest rates and the economic uncertainties that were expected to impact credit costs for banks caused banks to underperform the broader S and P 500 index for the last couple of years. More recently, we've seen a lift in our share price in" --- (BAC, event transcript, 2024/04/24)

Changes in Dividend Policies

Dividend policies are largely at the discretion of company boards, with many firms like Altria, Verizon, and Kimberly-Clark expressing confidence in their ability to increase dividends. IBM and Clorox also emphasize maintaining attractive dividend policies, indicating a focus on sustaining or enhancing shareholder returns despite political uncertainties.

"So the dividend increases, I'll take it in reverse order. Dividend increases are at the discretion of the Board." --- (MO, event transcript, 2024/05/16)

"Then secondly, continue to put my board in a position to increase our dividend." --- (VZ, conference, 2024/05/21)

"As a result, we're confident in our ability to continue growing our dividend and repurchase shares with an aspiration to deliver consistent double digit total shareholder returns in the coming years." --- (KMB, conference, 2024/06/04)

"But our primary capital allocation is to invest in our business, both organically, inorganically and to maintain an attractive return to shareholder program with our dividend policy." --- (IBM, earning call, 2024/Q1)

"Supporting the dividend would be the next. And then, of course, any opportunities to expand our portfolio where it makes sense for us." --- (CLX, conference, 2024/05/14)

Risk Management Strategies

Companies are enhancing operational and compliance frameworks, recalibrating risk, focusing on liquidity, and using fair value measurements to manage risks amid political uncertainty.

"The actions we have taken to strengthen the Company have helped prepare us for a variety of economic environments, and while risks exist, we see significant opportunities in front of us. Our commitment and the progress we are making to build an appropriate operational and compliance risk management framework is foundational for our Company, and we will continue to prioritize and dedicate all necessary resources to complete our work." --- (WFC, earning call, 2024/Q2)

"So, we're seeing clients around the world recalibrate their risk. There are some clients who were sitting in way excess -- too much cash, and they're obviously paying for that, and we'll see how they re-risk. But overall, I think probably if I had to say the headlines for the first six months, the clients that are overweighted in illiquid strategies like private equity where they had liquidity issues, you saw them keeping more cash balances." --- (BLK, earning call, 2024/Q2)

"Across the investment bank, navigating changes in the cycle means being deliberate around risk management and, given geopolitical uncertainty, where we spend our time to deliver clients, solutions, and to capture share. In wealth management, we continue to focus on aggregating assets and delivering strong advice." --- (MS, earning call, 2024/Q2)

"And so all of that creates risk management needs and active managers need to grapple with it and so on and so forth." --- (JPM, earning call, 2024/Q1)

"The use of fair value to measure financial instruments is fundamental to our risk management practices and is our most critical accounting policy." --- (GS, sec filing, 2024/Q2)

Regulatory Changes

Regulatory changes in the healthcare sector, such as adjustments in Medicare programs and final MA rate notices, can negatively impact financial stability and dividend payments for companies like CVS, Humana, and Cigna. These changes affect benefit levels, cash flow, and financing costs, influencing their ability to maintain or increase dividends.

"Key Regulatory Trends and Uncertainties • The Company is exposed to funding and regulation of, and changes in government policy with respect to and/or funding or regulation of, the various Medicare programs in which the Company participates, including changes in the amounts payable to us under those programs and/or new reforms or surcharges on existing programs, including changes to applicable risk adjustment mechanisms." --- (CVS, sec filing, 2024/Q1)

"Specific to 2025, we expect benefit levels, planned stability and choice for seniors to be negatively impacted by the final MA rate notice, which is not sufficient to address their current medical cost trend environment and regulatory changes." --- (HUM, earning call, 2024/Q1)

"Our businesses generate significant cash flows from operations, some of which is subject to regulatory restrictions relative to the amount and timing of dividend payments to the parent company." --- (CI, sec filing, 2024/Q2)

"• Changes in conditions in the U.S. and global capital markets can significantly and adversely affect interest rates and capital market conditions which could result in increased financing costs. Key Regulatory Trends and Uncertainties" --- (CVS, sec filing, 2024/Q1)

"Importantly, we believe that the industry will adjust to the current funding regulatory over time, continuing to deliver strong top line growth and normalizing at an appropriate margin of at least 3%." --- (HUM, earning call, 2024/Q1)

Future Outlook and Predictions

Apple's forward-looking statements highlight the potential impact of macroeconomic conditions on revenue, expenses, and capital allocation, suggesting that political uncertainty could influence the future outlook of dividend stocks.

"After that, we'll open the call to questions from analysts. Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements, including, without limitation, those regarding revenue, gross margin, operating expenses, other income and expense, taxes, capital allocation and future business outlook, including the potential impact of macroeconomic conditions on the company's business and results of operations." --- (AAPL, earning call, 2024/Q2)

"After that, we'll open the call to questions from analysts. Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements, including, without limitation, those regarding revenue, gross margin, operating expenses, other income and expense, taxes, capital allocation, and future business outlook including the potential impact of macroeconomic conditions on the company's business and results of operations." --- (AAPL, earning call, 2024/Q3)