Staying Away from These 15 Dividend Decreasers

Last week, we took a look at the cream of the income investing crop – the 14 stocks that raised their dividends last month. And while those 14 were a minority in February, it wasn’t by much. Only one more stock lowered its dividend than raised it.

But before you get too excited about yet more economic news that’s “less bad” than expected, consider the magnitude of the cuts. Companies that increased their dividends did so by an average of 7.1% – in stark contrast to the 78.2% average dividend decrease.

Here’s a rundown of the 15 S&P 500 constituents that lowered or cut their dividends last month (by magnitude of the change):

click to enlarge

What’s worse is the fact that three companies – Citigroup (C), Motorola (MOT), and the New York Times Company (NTY) actually suspended dividend payouts.

All told, these 15 companies trimmed $12.20 from the S&P’s dividend pool, while the 14 increasers added a meager $1.12. Ouch.

Now, it’s no surprise that almost half of these stocks (6 out of 15) are financial stocks. In addition to the walloping the banks and brokers have gotten, TARP rules prevent Uncle Sam’s special class of debtors from paying shareholders before paying back the taxpayers. But it’s clearly not just happy TARP recipients that are slashing their payouts.

According to a recent article in the LA Times, Wells Fargo’s (WFC) decision to cut its dividend was the last nail in the coffin for financial income stocks. Tom Petruno said:

In the banking sector, Wells was the last of the Mohicans: With its cut, not a single financial company remains in the S&P 500 list of the top 25 dividend payers, in terms of total dollars paid out annually.

Wells will be in March’s dividend decreasers.

That doesn’t mean that all financials are faulty… we previously talked about at a few financials that are actually performing well – T. Rowe Price (TROW), and Chubb (CHB) among them. As a T. Rowe alum, that stock’s performance is no surprise – the firm is known for being more conservative than its peers. Still, while these companies may be best in breed, I’m happy to steer clear of the financials right now, especially if dividends are my goal.

It looks like investors are going to be going on a “dividend diet” – or at least continuing their current one – for a time to come now.

Disclosure: None

Comments

[malach hamo...:]

the list lumped some real basket cases - C, NYT come to mind, with a few that have a real sustainable business model that just need to conserve cash and bolster their balance sheets - JPM being a real standout here, one of the few major banks with a real future.

the fact that dividend cuts are far more radical than increases should not come as a surprise - increases are expected and "normal"; cutting a div is a highly radical step and is done with fear and fury.

Apr 07 06:07 AM

[David Van K...:]

Excellent article, as was your article about dividend raisers last week.

That said, I hesitate to draw general conslusions such as "It looks like investors are going to be going on a 'dividend diet' – or at least continuing their current one – for a time to come now."

My reason is that most of these dividend cuts were predictable. The dividends were clearly in peril, and attentive dividend investors should have pruned most of these stocks from their portfolios by now. I explored this subject in an article last week: "First Quarter Dividend Statistics--What to make of Them?" (available here: seekingalpha.com/artic... ).

The financial sector has been dominating the stocks cutting dividends since mid-2008, and that has continued to the present. In March, financial firms accounted for half of the 12 companies cutting dividend payments in the S&P 500. And these days, as you point out, when banks cut their dividends, it is usually a massive cut.

Dividend investing is a very long-term strategy whose success is measured over years and decades, not months or quarters. From this point of view, most of the recent dividend cuts were not relevant to attentive dividend investors, because they did not occur in stocks that such investors should still own.

As to financial sector stocks, their ownership now should be among value investors--or speculators--who are hoping for a snap-back in prices as the economy improves and the various governmental money injections around the world begin to have an effect. They are not for people looking for a reliable dividend income stream.

Apr 07 10:13 AM

[mdpath:]

The Symbol for Chubb is CB not CHB.

Apr 07 01:01 PM

[Jonas Elmer...:]

Hey guys, thanks for the comments -

David, I do agree with most of what you say, but the fact remains that whether or not attentive investors should have pared these positions, lots of people still own the stocks on this list (for a myriad of reasons). There are still lots of stocks out there that have decent payouts, but not these guys.

Oh, and thanks for the link to your article... it's a great read!

mdpath - Good catch. Thanks.

Apr 07 02:34 PM

[Kelev:]

GCI has been beaten up pretty badly and although it is in a terrible industry, they have solid cash flow and are trading at a forward P/E of less than 2. Their $0.16 divy per year is still 6% at today's prices.

Apr 08 01:10 AM