The price of Carnival (NYSE:CCL) stock is down about 70% on the year so far. Quite a number of our readers may have taken cruises over the years and even own CCL stock. But now much of that might change.

After all, those numbers belong to a world before the coronavirus from China. Now investors are wondering whether they should be concerned about the future of travel and tourism shares, especially those of cruise stocks like CCL, which have plummeted in recent weeks.

Today I’d like to discuss the prospects for the company in more detail, so that you can make a better informed decision about your portfolio holdings. However, I wouldn’t necessarily rush to bet on a fast and full recovery soon.

Why CCL Stock Has Been Sinking

Headquartered in Miami, FL, and London, U.K., Carnival’s stock is dually listed on both the New York Stock Exchange (NYSE) and London Stock Exchange (LSE).

The company owns the Princess Cruise brand, which in turn operates Grand Princess and Diamond Princess, the cruise ships that have recently been in the news, especially during the initial days of the global coronavirus outbreak.

Over the past few weeks, Carnival has released several trading updates. The press release of March 13 announced that the group was “pausing operations immediately across its fleet of ships based in North America.”

Earlier on Feb. 12, even before the novel coronavirus outbreak had not yet become a global pandemic, CCL management said “as a result of Coronavirus, the company believes the impact on its global bookings and cancelled voyages will have a material impact on its financial results which was not anticipated in the company’s previous 2020 earnings guidance. Since the situation continues to evolve, the company is currently unable to determine the full financial impact on its fiscal year 2020.”

Understandably these developments have been bad news, or even black swan events, not just for Carnival, but for other cruise companies, including Norwegian (NYSE:NCLH) and Royal Caribbean Cruises (NYSE:RCL).

As a result, shares of these companies have been tumbling while coronavirus fears continue to ripple through broader markets. In recent days, we have witnessed many countries close national borders and even limit the domestic movement of citizens.

In its 2019 annual report, management emphasized the importance of three angles for Carnival’s 2020 earnings forecast. They include demand, supply and cost control. At this point, there is no demand or supply. Therefore, the pain may not yet be over for CCL stock and most of its peers.

Can Carnival Shares Recover Soon?

Until we have more clarity on the global fight against the virus, there will likely be more turbulence ahead for cruise and other travel companies, including Carnival.

Many travellers worldwide now have to back out of travel plans completely. It may take months before calm and normality returns to the cruise industry.

Buying when markets are in a free-fall takes courage. But if you liked a given stock several weeks ago for solid fundamental reasons, you would probably like it more when the price is lower.

Many analysts indeed believe the recent crash gives investors a buying opportunity as markets tend to bounce back, usually in matter of months. Nonetheless, prices may go even lower after you buy into the shares.

But we can’t deny that at least for the rest of the year, the fundamentals of the cruise industry have changed. CCL and its peers are operating in a different world right now.

Finally, if you are an investor who also pays attention to technical charts, you may want to know that there will likely be more volatility ahead.

On March 16, CCL stock made a new 52-week low at $14.50. The last time we were at these levels was in late 2008. Carnival shares would need to stabilize and form a base before they can start to make a sustainable leg up.

That said, many governments are likely to introduce various stimulus packages to support industries or even offer direct help to specific companies. In such a case, Carnival stock may rally along with other travel shares.

Falling Prices, Higher Dividend Yields

A lower share price obviously boosts the prospective dividend yield, assuming the company does not cut the dividend.

And as long as companies do not reduce their dividends, this passive income keeps rolling in regardless of how the market behaves. CCL stock’s current dividend yield stands at an eye-popping 11.2%.

Yet given the rather poor earnings results to be expected in 2020, I’d urge potential investors to remember that the stock’s dividend may indeed be cut.

The dividend payout ratio can show investors if a stock is paying out either less or more than the company earns. In other words, if a company earns $1 per share but pays a dividend of $1.30, management may have to decrease the dividend at some point in the near future. A payout ratio of over 100% means that a company is paying out more in dividends than it earns.

Carnival stock’s payout ratio is 0.82, which makes the dividend sustainable as long as the company keeps the earnings around current levels. However, that is not likely to be possible. I’m expecting dividend cuts from many travel companies in the coming months.

Investor Takeaway

If you are currently a shareholder in CCL stock, you may want to check its website for regular investor updates, especially on dividends as well as other metrics.

Ultimately, Carnival as well as other cruise and travel companies have suffered over the past few weeks for good reason. The novel coronavirus outbreak has put the industry in uncharted waters.

It may take months before so many of us are able to travel again for pleasure. Older generations form the core customer base for the cruise industry. Until nations have the all clear from health authorities, those clients are not likely to be sailing ship.

This year will not be an easy year for the industry. Yet I’m hopeful that many of the companies that investors liked prior to the COVID-19 outbreak will likely be back in business fully in 2021.

Therefore, any decision regarding your portfolio holdings that may be fundamentally affected by the current market dynamics, especially on cruise and travel stocks like CCL. You should make decisions carefully within your own risk/return profile and your investment horizon. You may also want to talk to a financial advisor regarding your own circumstances.

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.