The economic devastation caused by Covid-19 has been unprecedented, with most countries across the world only just starting to recover from the unforetold effects of the virus. One of the more prominent financial casualties of the pandemic has been the domain of “dividend-based income schemes,” often relied on by entrepreneurs as they seek to achieve the best of two worlds — capital appreciation of an equity investment with a regular cash flow customary for a fixed income instrument. This is a particularly convenient strategy for those heavily invested in their businesses while needing a regular income stream to fund their day-to-day expenses.
After a dire year for corporate payouts, where an increasing number of multinationals will have to cut or cancel their dividends altogether, a whopping 75 percent of all UK-based firms have already had to resort to such measures. To put things into perspective, this figure was only 40 percent during the last major dividend crises — i.e. the 2008 credit recession.
But dividends have been on the decline for decades, falling from grace since the 1990s when the average payout ratio for S&P 500 companies fell to 30 percent from a previous fluctuating average of 40 percent to 60 percent between 1950 and 1990. Additionally, as per data recently made available by global financial administrators Link Asset Services, one can see that during Q2 2020 alone, the total amount paid in dividends by UK companies fell by 57.2 percent to £16.1bn, signalling a cut of almost £22bn. Covid-19 has merely accelerated the inevitable: Cuts were coming anyway.
What’s causing this to happen? What lies ahead?
While there are many nuances to why dividends are going out of fashion, one of the main reasons at the moment is the need for companies to hoard cash due to today’s uncertain economic climate. Secondly, dividend receipts are incredibly inefficient and cumbersome when it is time for a person to file their taxes. Lastly, an over-reliance on dividend income tends to signify an absence of alternative attractive investment opportunities in the market.
The lock downs have also spurred on the aforementioned slew of dividend cutbacks, which are likely to continue well into the future as companies start to pay off vast debts they may have gathered during the crisis. As a result, it is anyone’s guess as to how much more debt most companies will have to accrue, especially as lockdown restrictions continue to be implemented across the globe.
Alternative investment strategies worth considering.
For entrepreneurs who rely heavily on dividend-based monetary streams, it may seem as though the ongoing pandemic has turned their world upside down. Since there is so much economic uncertainty across most markets today, individuals should maintain diversity across their portfolios, spreading their investments across a variety of different regions, sectors, and asset classes. For example, dividends emanating from companies affiliated with the defense, healthcare, and technology sectors have faced little to no pressure throughout the coronavirus crisis. They may, therefore, be potentially lucrative investment avenues.
Similarly, forward-looking entrepreneurs may choose to switch up and modernize their strategies by considering inflation-beating assets such as cryptocurrencies or even precious metals like gold. While neither Bitcoin nor gold pays any dividends, it’s always possible to sell some of your holdings during bull cycles in order to lock in profits, thus allowing owners to generate steady cash streams as and when required.
People might even want to consider different asset classes such as high yield and emerging market bonds that can routinely deliver gains ranging between 3 percent to 4 percent, which, in this low-interest-rate environment, could be quite an attractive option for many. Other options include ‘investment trusts’ since they can borrow from or use their ‘revenue reserves’ – which basically comprise of the dividends they receive any given year — allowing their backers to draw steady income streams even during leaner periods.
Lastly, micro-investing is another untapped domain that is fast gaining prominence. It affords entrepreneurs the ability to maximize their money’s growth potential while giving them a good shot at beating many common inflation-related woes. In fact, over the course of the last few years, a number of digital platforms such as OSOM Finance, Acorns, and Robinhood, have made the process of micro-investing extremely streamlined and hassle-free for those interested in exploring this space.
The new normal and the adverse effects of low-interest rates.
With interest rates being cut by central banks globally, it has become easier for people to borrow money than ever before. For example, in the wake of the coronavirus pandemic, many Central Banks cut interest rates to essentially zero in 2020, primarily as a means to shelter their economies from the effects of the virus.
While on paper this may sound good because reduced interest rates can increase consumer/business expenditure, enhanced market investments, etc., it can also result in inflation and the creation of a liquidity trap which can severely devalue one’s local fiat currency.
For example, following the 2008 credit crisis, the Fed lowered rates and injected money into the economy to increase economic activity. However, the move created a liquidity trap — wherein people started to hoard cash in fear of another market crash — and as a result, the American economy failed to expand despite zero/very low-interest rates.
Low-interest rates can reduce one’s spending power and have an adverse impact on a country’s middle class because when interest rates are lowered, unemployment rates can increase since companies can lay off well-paid individuals in favor of contractors, temporary/part-time workers at much lower rates.
This, in turn, facilitates a wage decline across the board, creating a highly undesirable social environment wherein individuals have to reduce their standard of living since they can no longer afford to pay for even essential goods and services.
One final hurdle that entrepreneurs can face whether they are looking to make income off of dividends or not: Capital. The alternatives outlined above, whether cryptocurrencies, high-yield bonds or even micro-investing, are all far less lucrative if an individual doesn’t have a notable portion of money to stake in the first place.
This essentially creates a barrier to lower class citizens who may have little or no spare cash and are living paycheck to paycheck. While new services and technologies are certainly lowering the barrier for entry, realistically valuable returns are near impossible without sizable upfront investments, particularly for the instruments with a fixed income component.
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Britain’s economy shrank by a record-breaking 9.9% in 2020, new figures by the Office of National Statistics show, highlighting the impact of Covid-19 restrictions, employment uncertainty and reduced demand, with limited growth in the final quarter narrowly avoiding a double-dip recession.
The Office for National Statistics said Friday that the U.K.’s economic output fell by 9.9% in 2020, the largest annual fall on record.
Though the economy grew 1% in the last quarter when looser restrictions boosted the services industry, overall output was down 7.8% from the last quarter of 2019, the ONS said.
The slump is twice that of the 2009 financial crisis and is possibly the worst in 300 years, with models from the Bank of England suggesting a decline of 13% during the Great Frost of 1709.
U.K. finance minister Rishi Sunak said the figures show that the U.K. has suffered a “serious shock” as a result of the Covid-19 pandemic.
“While there are some positive signs of the economy’s resilience over the winter, we know that the current lockdown continues to have a significant impact on many people and businesses,” Sunak said, adding that his focus “remains fixed on doing everything we can to protect jobs, businesses and livelihoods.”
The pandemic and associated public health restrictions made for an economically bumpy 2020, especially in economies like the U.K. which are heavily reliant on services. In the U.K., the first and second quarters of 2020 shrunk the economy by 2.9% and 19% respectively, but there was record growth of 16.1% in the third as restrictions were lifted.
In contrast, the U.S. economy shrank by a record 3.5% in 2020, the worst year since the aftermath of World War 2.
What To Watch For
Strict public health measures and a resurgent wave of Covid-19 infections driven by a dangerous new variant of the virus have the U.K. economy likely falling again in 2021. While the U.K. has the worst coronavirus death rate in the world, it also has one of the best vaccination records, priming the country for an economic comeback. The BBC reported Bank of England Chief Economist Andy Haldane describing the economy as a “coiled spring” ready to release large amounts of “pent-up financial energy”.
I am a London-based reporter for Forbes covering breaking news. Previously, I have worked as a reporter for a specialist legal publication covering big data and as a freelance journalist and policy analyst covering science, tech and health. I have a master’s degree in Biological Natural Sciences and a master’s degree in the History and Philosophy of Science from the University of Cambridge. Follow me on Twitter @theroberthart or email me at email@example.com
The “economic emergency” caused by Covid-19 has only just begun, according to the UK’s Chancellor Rishi Sunak, as he warned the pandemic would deal lasting damage to growth and jobs. Please subscribe HERE http://bit.ly/1rbfUog Official forecasts now predict the biggest economic decline in 300 years. The UK economy is expected to shrink by 11.3% this year and not return to its pre-crisis size until the end of 2022. Government borrowing will rise to its highest outside of wartime to deal with the economic impact.
The government’s independent forecaster, the Office for Budget Responsibility (OBR) expects the number of unemployed people to surge to 2.6 million by the middle of next year. It means the unemployment rate will hit 7.5%, its highest level since the financial crisis in 2009. Newsnight’s Political Editor Nick Watt and Policy Editor Lewis Goodall report. #BBCNews #Newsnight #Coronavirus Newsnight is the BBC’s flagship news and current affairs TV programme – with analysis, debate, exclusives, and robust interviews. Website: https://www.bbc.co.uk/newsnight Twitter: https://twitter.com/BBCNewsnight Facebook: https://www.facebook.com/bbcnewsnight
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The United States added just 49,000 jobs in January, according to data released by the Labor Department Friday—less than half the 100,000 added jobs economists were expecting as the pandemic continues to force layoffs in industries such as retail and hospitality despite gains in white-collar jobs.
The unemployment rate ticked down to 6.3% in January, from 6.7% in December; the metric hit a record high of 14.7% in April.
There are now 10.1 million unemployed people in the United States, compared to 10.7 million in December, the government said; job gains in professional and business services and education helped offset losses in industries including retail, healthcare, transportation, warehousing and hospitality.
Despite the decrease in unemployment, the number of permanent job losers increased to about 3.5 million in January, from 3.3 million in December—about three times prepandemic levels.
Another grim sign of a still-reeling job market, 400,000 Americans left the labor force last month, pushing the labor force participation rate slightly down to about 61.4%.
Of the 7 million people in America who want a job but are not actively seeking employment, about 4.7 million were prevented from looking for work due to the pandemic, the Labor Department said.
January’s report continues to show stark differences in unemployment by race, with minority groups such as Black Americans and Hispanics facing above-average unemployment rates of 9.2% and 8.6%, respectively.
“After contracting in December, the labor market returned to growth in January, as some economic lockdowns eased, which allowed more businesses to stay open,” James McDonald, the CEO of Los Angeles-based Hercules Investments said Friday. “While it’s encouraging to see the economy added jobs in January, we are still far away from pre-Covid-19 employment levels.” Overall, there are still 10 million less jobs than there were before the pandemic.
17.8 million. That’s how many people were still receiving some form of government unemployment benefit last week—shockingly high compared to the 2.1 million total claims filed in the comparable week in 2020, according to weekly data released Thursday. That’s higher than the number of unemployed Americans, due to a startling number of people who’ve dropped out of the labor force because they’re no longer looking for work.
The Congressional Budget Office said Monday that it does not expect employment will reach prepandemic levels until 2024–echoing similar estimates from economists predicting that the labor market recovery will severely lag the broader economic recovery in the years to come. Dallas Federal Reserve President Robert S. Kaplan said Thursday that the next two to three months will remain challenging for the economy even though widespread vaccination efforts should help curb some of the downside economic risks of increased Covid-19 infections.
After an all-night session, the Senate narrowly approved a budget resolution Friday morning that will allow Democrats to move forward on President Joe Biden’s lofty $1.9 trillion stimulus proposal without any Republican backing. It’s likely the package will need to be trimmed down to satisfy some of the more conservative Democrats, but experts, including Vital Knowledge Media Founder Adam Crisafulli, still estimate the resulting bill could total as much as $1.7 trillion and hit President Biden’s desk before the current enhanced federal unemployment benefits expire on March 14. Biden’s plan extends the enhanced benefits of $400 per week through September.
I’m a reporter at Forbes focusing on markets and finance. I graduated from the University of North Carolina at Chapel Hill, where I double-majored in business journalism and economics while working for UNC’s Kenan-Flagler Business School as a marketing and communications assistant. Before Forbes, I spent a summer reporting on the L.A. private sector for Los Angeles Business Journal and wrote about publicly traded North Carolina companies for NC Business News Wire. Reach out at firstname.lastname@example.org.
NBC News 5.13M subscribers NBC News’ Steve Patterson shares the stories of Kanisha Mayweather, Stacy Davis and Victor Patterson — three of the millions of unemployed Americans who have faced the pandemic with faith and perseverance since March.» Subscribe to NBC News: http://nbcnews.to/SubscribeToNBC » Watch more NBC video: http://bit.ly/MoreNBCNews NBC News is a leading source of global news and information. Here you will find clips from NBC Nightly News, Meet The Press, and original digital videos. Subscribe to our channel for news stories, technology, politics, health, entertainment, science, business, and exclusive NBC investigations. Connect with NBC News Online! Visit NBCNews.Com: http://nbcnews.to/ReadNBC Find NBC News on Facebook: http://nbcnews.to/LikeNBC Follow NBC News on Twitter: http://nbcnews.to/FollowNBC Follow NBC News on Instagram: http://nbcnews.to/InstaNBC Unemployed Americans Still Struggling During pandemic: ‘I Do A Lot Of Praying’ | NBC Nightly News
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In a sluggish economy or an outright recession, it is best to watch your spending and not take undue risks that could put your financial goals in jeopardy. What happens to the economy during a recession can negatively impact your personal finances and wealth. However, by being prepared and taking a few simple steps to reduce your risks, you can improve your chances of weathering the financial decline. Below are some of the financial risks everyone should avoid taking during a recession.
When the economy is in a recession, financial risks increase, including the risk of default, business failure, and bankruptcy.
Avoid increasing, and if possible reduce, your exposure to these financial risks.
For example, you’ll want to avoid becoming a cosigner on a loan, taking out an adjustable-rate mortgage, and taking on new debt—all of which can increase your financial risk during a recession.
If you’re an employee, you’ll want to do everything you can to safeguard your job, such as performing top-notch work and improving your productivity.
If you’re a business owner, you might need to postpone spending on capital improvements and taking on new debt until the recovery has begun.
Becoming a Cosigner
Cosigning a loan can be a very risky thing to do even in flush economic times. If the individual taking the loan does not make the scheduled payments, the cosigner could be responsible to make them instead. During an economic downturn, the risks associated with cosigning a note are even greater, since the person taking out the loan has a higher chance of losing their job—not to mention the cosigner’s own elevated risk of ending up unemployed.
Cosigning potentially leaves you on the hook for the life of a loan. Consider other ways to help the borrower if you can.
That said, you may find it necessary to cosign for a family member or close friend regardless of what is happening in the economy. In such cases, it pays to have some money set aside as a cushion. Or, instead of cosigning, it may even be preferable to assist with a down payment or other types of assistance rather than leaving yourself on the hook for a cosigned loan on an ongoing basis.
Taking out an Adjustable-Rate Mortgage
When purchasing a home, you may choose to take out an adjustable-rate mortgage (ARM). In some cases, this move makes sense (as long as interest rates are low, the monthly payment will stay low as well). Interest rates usually fall early in a recession, then later rise as the economy recovers. This means that the adjustable rate for a loan taken out during a recession is nearly certain to rise.
While interest rates usually fall early in a recession, credit requirements are often strict, making it challenging for some borrowers to qualify for the best interest rates and loans.
But consider the worst-case scenario: You lose your job and interest rates rise as the recession starts to abate. Your monthly payments could go up, making it extremely difficult to keep up with the payments. Late payments and non-payment can, in turn, have an adverse impact on your credit rating, making it more difficult to obtain a loan in the future.
Instead, assuming you have decent credit, a recession may be a good time to lock in a lower fixed rate on a mortgage refinance, if you qualify. However, be cautious about taking on new debt until you see signs the economy is recovering.
Taking on New Debt
Taking on new debt—such as a car loan, home loan, or student debt—need not be a problem in good times when you can make enough money to cover monthly payments and still save for retirement. But when the economy takes a turn for the worse, risks increase, including the risk that you will be laid off. If that happens, you may have to take a job—or jobs—that pay less than your previous salary, which could eat into your ability to pay your debt.
In short, if you are considering adding debt to your financial equation, understand that this could complicate your financial situation if you are laid off or have your income cut for some reason. Taking on new debt in a recessionary environment is risky and should be approached with caution. In the worst-case scenario, it could even contribute to bankruptcy. Pay cash if you can, or wait on big new purchases.
Taking Your Job for Granted
During an economic slowdown, it is important to understand that even large corporations can come under financial pressure, leading them to reduce expenses any way they can. That could mean scaling back on operating expenses, cutting dividends, or shedding jobs.
Because jobs become so vulnerable during a recession, employees should do all they can to make sure their employer has a favorable opinion of them. Coming to work early, staying late, and doing top-notch work at all times is no guarantee that your job will be safe, but doing those things does increase your chances of staying on the payroll. From an employer’s perspective, it makes more sense to cut marginal workers rather than reduce hours or wages for their more productive employees. Make sure that you are not a marginal worker.
Taking Risks With Investments
This tip applies to business owners. While you should always be thinking about the future and investing in growing your business, an economic slowdown may not be the best time to make risky bets. Early on in a recession is not the time to stick your neck out. Later, as soon as the economy starts to show signs of sustainable recovery, is the time to start thinking big when prices for capital purchases and labor costs for new hiring are low.
Especially avoid investment projects that would require you to take on new debt to finance.
For example, taking on a new loan to add physical floor space or to increase inventory may sound appealing—particularly since interest rates are likely to be low during a recession. But if business slows down—another side effect of recessions—you may not have enough leftover at the end of the month to pay interest and principal on time. Wait until interest rates just start to tick upward and leading economic indicators for your market or industry turn up
The Bottom Line
There’s no need to live a monk’s existence during an economic slowdown, but you should pay extra attention to spending and be wary of taking any unnecessary risks. Even in the midst of a significant economic downturn, there are many positive steps you can take to improve your situation and recession-proof your life. These include implementing a realistic budget, establishing an emergency fund, and generating additional sources of income.
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Sen. Bernie Sanders, an independent, and Sen. Josh Hawley, a Republican, are looking to modify a $908 billion plan with an amendment that would authorize a second check for up to $1,200. The unamended proposal doesn’t include another direct payment. If Sanders and Hawley’s amendment is successful, the new payment would likely follow the same outlines of the first stimulus check for speed and simplicity, but even minor changes could have a significant impact for millions.
Read on for more information about what may happen to stimulus eligibility now. We update this story often.
How the qualifications could change with a new bill
While many members of Congress agree on the need for more aid, they differ on the specifics, and the two sides continue to discuss who needs assistance and how much to spend. Based on proposals that’ve been on the table this fall, here’s what lawmakers could do (or have already done):
Update the definition of a dependent: The CARES Act capped eligible dependents at kids age 16 and younger. One proposal this summer expanded the definition to any dependent, child or adult, you could claim on federal taxes. That means families with older kids or older adults at home could potentially see $500 more in their check total per individual if that proposal is adopted.
Include noncitizens: The CARES Act made a Social Security number a requirement for a payment. Other proposals would’ve expanded the eligibility to those with an ITIN instead of a Social Security number because they’re classified as a resident or nonresident alien. A Republican plan this summer would’ve excluded those with an ITIN.
Who could qualify for a second stimulus check
Likely to be covered by the final bill
An AGI of less than $99,000 (Same as CARES)
Head of household
An AGI of less than $146,500 (Same as CARES)
Couple filing jointly
An AGI less than $198,000 (Same as CARES)
Dependents of any age
No limit (HEALS proposal; up to 3 in Heroes)
US citizens living abroad
Yes, same as CARES
Citizens of US territories
Likely, with payments handled by each territory’s tax authority (CARES)
SSDI and tax nonfilers
Likely, but with an extra step to file (more below)
Could be set by court ruling or bill
Excluded under CARES through IRS interpretation, judge overturned
Qualifying “alien residents” are currently included under CARES
Unlikely to be covered by the final bill
Noncitizens who pay taxes (ITIN)
Proposed in Heroes, unlikely to pass in Senate
Spouses, kids of ITIN filers
Excluded under CARES, more below
People who owe child support
Included in Heroes proposal, but excluded under CARES
Would the income limits be similar with another check?
Under the CARES Act, here are the income limits based on your adjusted gross income for the previous year that would qualify you for a stimulus check, assuming you met all the other requirements. (More below for people who don’t normally file taxes.) With the amendment proposed by Sanders and Hawley on Dec. 10, the requirements guidelines would follow those set out in the CARES Act.
You’re a single tax filer and earn less than $99,000.
You file as the head of a household and earn under $146,500.
You file jointly with a spouse and earn less than $198,000 combined.
What role do my taxes play in how much I could get? What if I don’t file taxes?
Our stimulus check calculator can show you how much money you could potentially expect from a second check, based on your most recent tax filing and a $1,200 per person cap. Read below for your eligibility if you don’t typically file taxes.
What should retired and older adults know?
Many older adults, including retirees over age 65, received a first stimulus check under the CARES Act, and would likely be eligible for a second one. For older adults and retired people, factors like your tax filings, your AGI, your pension, if you’re part of the SSDI program (more below) and whether the IRS considers you a dependent would likely affect your chances of receiving a second payment.
If I share custody or owe child support, how does that affect eligibility?