When COVID-19 started sweeping across Canada, Cenovus Energy Inc. had to think fast to protect the company from the pandemic and a simultaneous oil price war between Saudi Arabia and Russia.
The Calgary-based company slashed its capital spending budget by $150 million in early April to stabilize the business amid low crude oil prices.
Then, it made another move that could be replicated by companies across the country as they head into an earnings season unlike any before: Cenovus temporarily suspended its dividend.
"We are taking proactive steps to address the current business environment while continuing to focus on the safety of our people and assets and maintaining reliable performance at our operations," Alex Pourbaix, Cenovus's chief executive, said in a release. "It is challenging to predict the duration and depth of these unprecedented low commodity prices."
Such decisions around dividends – a fluctuating portion of a company's earnings paid to shareholders as a way of rewarding them for their financial support – will not be made easily.
Businesses will have to balance satisfying shareholders, who will never say no to more cash, with keeping their companies afloat as they grapple with mass layoffs, forced closures of their brick-and-mortar locations, transitioning staff to work from home and in some cases, the erosion of their entire industry.
Such situations have already caused some companies to suspend or cut their dividends, including Swiss Chalet and Harvey's owner Recipe Unlimited Corp., Mr. Sub and Manchu Wok owner MTY Food Group Inc., oil and gas company Arc Resources Ltd. and Chorus Aviation Ltd.
"Everybody has taken a hit...but if you have taken a revenue hit in certain industries, and you're not suspending dividends, eyebrows will rise," said Richard Leblanc, a professor of governance, law and ethics at York University.
Dividends can only be declared by a board of directors, which weighs the health of a company and any challenges or benefits expected in the future, when making the decision, he said.
A new consideration was added to their deliberations in 2019, when Leblanc said the Canadian Business Corporations Act was changed to demand business leaders act with "the long-term interests" of a corporation in mind.
"It would be very difficult to argue that when tough decisions have to be made about laying off workers and supply chains that dividends should not be (looked at)," Leblanc said.
"Everything should be on the table."
But David Beatty, the director of the David and Sharon Johnston Centre for Corporate Governance Innovation at the Rotman School of Management in Toronto, is not hopeful all companies will take that approach.
"The center of gravity for the last 50 years has been at … any publicly-traded corporation its shareholders," he said.
"I'd look after my employees first and my shareholders second, and in that I'd probably be in a very large minority."
Beatty believes now is the time for companies to think about the long term, despite the impulse to put stakeholders first and act quickly because of the uncertain and fast-moving nature of COVID-19.
"If we give you our free cash flow, we're gonna have to lay off a ton of people,...defer capital improvements in A, B and C plants," Beatty imagined companies should be thinking. "Rather than do that and keep you happy with a dividend even when you need it most, we're thinking about the medium to long term of our business and it requires this cash."
Leblanc thinks companies in the oil and gas, aviation, hospitality, and entertainment industries are most likely to have to cut or suspend dividends.
Businesses including Air Canada, WestJet Airlines Ltd., Cineplex Inc. and Boston Pizza International Inc. have had to temporarily lay off workers.
"If you're in an industry that is laying off workers, and you haven't lowered executive pay and you have not suspended or significantly reduced dividends, you're a sitting duck for a potential plaintiff's attorney," Leblanc said.
However, many of Canada's top banks are vowing they won't have layoffs this year.
They doubled down on claims about their strength at their annual general meetings in early April, declaring that they wouldn't suspend dividends, even as their U.K. counterparts scrapped them at the behest of the Prudential Regulation Authority.
"This bank has been making dividend payments for 188 years and we certainly expect that to continue," Brian Porter, Bank of Nova Scotia's chief executive, said.
The bank's shareholder base is different than similar organizations in Europe and the U.S. because about 50 per cent of Scotiabank shareholders are individual Canadians who rely on the income stream from the shares for their retirement or to meet general household expenditures, "so we know it is important to our shareholders," he said.
Over at Bank of Montreal, chief executive Darryl White said the business has a 191-year record of maintaining a payout for shareholders.
"The Canadian banks went into this crisis with payout ratios, which we have maintained for awhile, below 50 per cent, which gives us a certain level of comfort," he said. "If you look back to the financial crisis, I think it is significant that there was no dividend reduction at BMO or any other Canadian bank for that matter and that was a pretty significant test."
Some of that confidence comes from banks having the benefit of being less exposed to the negative impacts of the pandemic because interest payments on debt are contractual, said Leblanc.
He was, however, surprised that banks are continuing to issue dividends amid COVID-19 because the International Monetary Fund has warned that the global economy might be headed for a depression.
"We don't know where this will go and financial institutions have a special responsibility in Canada to set the tone," he said.