Dividends 2009: Trust But Verify

On Friday, Standard & Poor's released a report containing a not so favorable outlook on dividends for 2009. In S&P's press release the firm projects dividends on the S&P 500 Index will be down 13.3% in 2009. This would be the worst decline since the 16.9% decline in 1942. The expected dividend rate for the S&P 500 Index is being reduced to $24.60 versus the $28.39 paid in 2008.

Howard Silverblatt, Senior Index Analyst at Standard & Poor's notes, "actual January dividend payments for the S&P 500 were down 23.9%, which speaks to the Q4 decreases, the $13.5 billion cuts year-to-date speaks to future payments."

S&P data shows:

• Sixty-two S&P 500 companies decreased their dividends in 2008 by an aggregate $40.6 billion with forty-eight of the decreases coming from Financials ($37 billion).

• Over the previous five years (2003-2007), there were only 12 dividend decreases in the Financials sector amounting to $5.1 billion.

• So far in 2009, fourteen issues (nine of which are Financials) have decreased their dividend rate by over $13.5 billion.

Appropriately, Howard Silverblatt indicates:

The bottom line is that investors need to do a lot more homework than in years past as the prospect for future dividends remains extremely cautious. On former President Ronald Reagan’s 98th birthday, his words still ring true today,Trust but Verify.

Source:

• S&P 500 Dividends Projected to Decline 13.3% in 2009; Worst Annual Decline Since World War II (pdf file), Standard & Poor's, by Howard Silverblatt and David Guarino, February 6, 2009.

Comments

[Conan the B...:]

Barron's has a good article about the Preferred series of various banks.

Special note has to made of the "Trust" series of both C and BAC which come first before Gov. issued Prefs

Feb 09 11:09 AM

[a. palmer jr.:]

I guess I don't quite understand dividend stocks. You buy a stock right now which doesn't have a snowball's chance of rising in value for a while, and hope you can get 3% dividends, if they're not cut. I bought 4 "dividend" stocks last year and each one was at least halved in their dividends. Why not just put your money in a safe CD?

Feb 09 11:39 AM

[henarl:]

Well, even CDs may not be safe if and when the FDIC and FSLIC go broke. Believe it or not, there is a limit out there somewhere to the govts ability to keep borrowing and/or printing money that has any value.

Feb 09 12:20 PM

[Conan the B...:]

Mr. a. Palmer jr.: Arnold?

The Preferreds are not common stocks. They were sold with a fixed rate of return at a specific price. Fear of nationalization has driven their prices down and the yeilds up. The dividends on them will be eliminated not cut if things really get bad. So far they are still being paid at the same rate as when they were issued.

BAC-PJ which I just picked up this morning at $11.20, had an annual yield of 7.25%, my yield will be around 15% for the duration and I will get it to maturity or until it is cancelled via nationalization. The chances of getting a 15% yield and over a 100% cap. gain is one I'm willing to take. IMO

Feb 09 12:37 PM

[Conan the B...:]

DIV: They are also getting a miniscule dividend while taking on the same risks.

What happened to KFT, another of your favorites, which lost 2 years worth of dividends in one day?

Feb 09 04:32 PM

[Alicia_Finance:]

Good question about KFT.

Everyone brings interesting perspectives.......

Feb 09 04:40 PM

[doubtful:]

"All bets are off" - but we are still betting. Just a bad habit we can't shake? Interesting times

Feb 09 06:46 PM

[Conan the B...:]

If you are going to take the risk, do it on an after inflation, after tax basis. Getting an annual dividend which does not cover both means that your money is being invested soley for capital gains from the start.

Just because there is a dividend increase history doesn't mean it will rise above inflation nor if it can be covered in difficult times.

Feb 10 12:31 AM