“Investors who count on dividend payments as a ‘safe’ investment are getting hammered right along with share prices,” says Kenneth Musante in a CNNMoney article on why 2009 is the year of the dividend decline.
According to the article, S&P analysts are expecting dividends to decrease 22.6% this year – the most since 1938.
That’s a startlingly bad number for the growing number of investors who are turning to dividends in this economy. Indeed, income stocks have become a growing interest as capital gains fell to the wayside in 2008’s disastrous market.
But are those analysts right? Are companies tightening the belt that much?
Frankly, it depends. While there’s no question that this year’s dividend cuts and suspensions are memorable, there’s a group of stocks that aren’t pushing their dividends down… they’re increasing them.
Here’s a rundown of the 14 S&P 500 constituents that increased their dividends last month (in by magnitude of the change):
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But before you go buying up this list blindly, there’s something to consider – companies that pay dividends are doing worse this year than companies who don’t.
Surprised? Well, in the past month dividend-payers on the S&P have underperformed non-payers by 4.71%; they’ve underperformed by 12.76%.
That’s no surprise… the one position in the Rhino Stock Report that cut its dividends made subscribers 20%.
Still, the rationale isn’t as counterintuitive as is might first appear – the dividend payers on the S&P are more staid plays that haven’t been beaten down as much in the past year. That’s why they haven’t seen the same bull run as the index’s other constituents.
At a glance, a couple of the stocks that warrant a second look are the non-cyclicals. Whether you believe we’ve seen a bottom or not, companies like Coca-Cola (KO) and Colgate (CL) are a safe bet right now.
Areas to stay away from? Financials – Chubb (CB) was the only financial play that raised its dividend last month. In fact, only 4 have this year (best in breed include T. Rowe Price (TROW) and HCP Inc. (HCP).)
In fact, a quarter of financial stocks on the S&P 500 have cut or suspended their dividends this year. On the whole, I think that financials are an interesting place for investors right now; the consensus is clear that the vast majority are going to continue to lost value throughout 2009. That’s why the good ones are going to make a select group of investors a windfall in 2009.
