Dividend Increases Are Harder to Come By

If dividend increasing stocks were fish in a pond, the catch would be harder to come by. For the first six months of 2009, 65 companies in the S&P 500 Index either cut or suspended their dividend payment. This compares to 20 for the same period in 2008 and 4 in 2007. Increases fell nearly 50% to 86 increases versus 158 increases for the first six months of 2008.

• Consumer Staples now account for largest dividend cash payments at 17.0%; financials, once over 30%, now represent 9.3% of the dividend cash payments.

• The top 26 issues account for 50.0% of the dividends with the first financial issue being Wells Fargo (WFC) at #41.

Data Source: Standard & Poor's (PDF)

Comments

[David Van K...:]

I know you may not have written the headline, but "harder to come by" may be misleading. That's because an attentive dividend investor would have performed stock-by-stock analysis and would not be owning most of the stocks that cut or suspended their dividend payments. Most "dividends in peril" can be identified, and cuts can be seen coming, with fairly easy analysis. But it does require getting a little dirt under your fingernails.

S&P's quarterly release of across-the-board dividend statistics is certainly interesting for broad trends, but no one following a dividend investment strategy should be investing across-the-board in the S&P 500 stocks. Your portfolio should consist of stocks selected one at a time for the most important dividend characteristics: sufficient initial yield (say 3% or more), consistency and safety of the dividend, and rising dividend.

Jul 08 09:26 AM

[a. palmer jr.:]

Some of the dividend cuts or suspensions didn't come because the company was doing poorly. Some came because of "unforseen circumstances ahead" I guess meaning in case they have a problem in the future they'll take the money now. I suppose they can always buy office furniture or buy out another company or new equipment. I thought I read where some of these companies paid out a large amount of their profits in order to avoid corporate taxes, like the Canadian Oil Trusts. I guess you can manipulate profits any way you want.

Jul 08 09:49 AM

[Old Trader:]

a. palmer,

Ahem...its NOT a matter of "manipulation"....certain categories of securities are bound by tax law to pay the majority of their profits out as dividends. These include the Canadian royalty trusts, REITs, and MLPs.

Another possible reason for a cut in dividends, no increase, or a smaller than normal increase would the current state of the credit markets, which are still tight, relatively speaking. Marshalling cash under tough conditions can be considered a sign of fiscal prudence.

David Van,

You're correct in saying that, with a bit of diligence, spotting impending divvie cuts doesn't qualify as "rocket science".


On Jul 08 09:49 AM a. palmer jr. wrote:

> Some of the dividend cuts or suspensions didn't come because the
> company was doing poorly. Some came because of "unforseen circumstances
> ahead" I guess meaning in case they have a problem in the future
> they'll take the money now. I suppose they can always buy office
> furniture or buy out another company or new equipment. I thought
> I read where some of these companies paid out a large amount of their
> profits in order to avoid corporate taxes, like the Canadian Oil
> Trusts. I guess you can manipulate profits any way you want.

Jul 08 12:59 PM

[whisperonth...:]

A dividend that gets cut is a stock that gets removed from my portfolio. Part of my goal is to supplement my IRA with a monthly dividend payment from my other investments. That means my IRA lasts longer because my needs are lowered, and my stocks don't get sold and therefore keep producing those dividends. In fact, my Roth IRA now holds only dividend stocks also. I stopped waiting for stock values to increase (the necessary thing for a portfolio to increase when no one is adding in anymore) and started helping things along with the dividends. As long as I reinvest, the value increases. When I take the dividends, the value holds steady. Plus, in my regular portfolio, I am not prevented from adding to it after retirement age. Therefore, I have something left over to give my kids.

Jul 08 05:38 PM