As consumers may avoid shopping at public places like malls, and with the rising likelihood that the knock-on effects of the spreading coronavirus will induce a recession, we think Macy’s is likely to cut their $0.3775/quarter ($1.51/year) dividend.
A 50% cut would save the company about $230 million a year in cash, which could be directed to debt reduction or to maintain their operational flexibility. At the current $9.50/share price, Macy’s shares yield about 16%, so a post-cut yield would equate to about 8%.
We retain our Buy rating on Macy’s. With the rapid deterioration in the economic outlook, we are reducing our price target to $24.