Dividends, Recessions And Records

Feb. 04, 2013 6:00 AM ET1 Comment

After spiking to a level higher than those recorded during the so-called "Great Recession" in the month of December 2012 in response to President Barack Obama's re-election and the corresponding guarantee of higher tax rates being imposed upon dividends, the number of publicly-traded U.S. companies acting to cut their future dividends remained elevated in January 2013.

Overall, some 44 companies acted to reduce their future dividend payments in January 2013 - well above the 10-per-month figure that would indicate that recessionary conditions are affecting the U.S. economy.

Taking into account the poor GDP performance of the U.S. economy in the fourth quarter of 2012, we should note that this indicator provided one of the earliest signals that the U.S. economy would be entering a period of near or outright contraction toward the end of 2012.

We do recognize however that this signal was affected in December 2012 by what we would describe as a "noise event, in this case, driven by influential investors at a large number of publicly-traded companies who responded to President Obama's re-election and the corresponding guarantee of higher tax rates being imposed upon dividends by either accelerating future dividend payments into 2012 or by making special or extra dividend payments before those higher tax rates might take effect in 2013.

Since many of these companies would then not be able to pay out the level of dividends in 2013 that they had previously promised after making these special payments before the end of 2012, they used the opportunity of their announcements that they would pay out extra dividends to also announce cuts to their future dividends, which is why we see such a spike in these announcements in December 2012.

We suspect that the number of dividend cut announcements being made in January 2013 likely includes

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