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Dividend Cut press releases by S&P can be misleading or maybe not

 

Dividend Cut press releases by S&P can be misleading and make it sound like all dividend investors are taking a bath.
 
Snippet from Dave Knapp
 
In February, S&P issued a press release headlined, S&P 500 Dividends Projected to Decline 13.3% in 2009; Worst Annual Decline Since World War II. 
 
 
The facts will be right. For the first six months of 2009, 65 companies in the S&P 500 either cut or suspended their dividend payment, compared to 20 for the same period in 2008 and 4 in 2007. Dividend increases fell from 158 for the first six months last year to 86 this year. In the second quarter, S&P 500 dividends posted their biggest decline in more than 40 years, dropping by $14.3 billion from a year earlier, according to S&P. More broadly, a record low 233 of the approximately 7,000 publicly owned companies that report dividend information to S&P’s Dividend Record increased their dividend payment during the second quarter of 2009, compared to 455 last year.
 
Some articles will quote Howard Silverblatt, Senior Index Analyst at S&P, who said, “It’s not a good time for dividend investors. The current trend to conserve cash and cut dividends has become defensive, with even relatively healthy companies choosing to reduce payouts. Until we see the economy better, …many companies will remain gun shy about parting with their cash.”
 
All of this is correct, as far as it goes. But the reason that these headlines, articles, sound bites, and statistics can be misleading is that a well-conceived dividend methodology filters out most stocks with “dividends in peril” before they cut their dividends, while at the same time it identifies stocks that are most likely to raise them. The indicia are there in the companies' business models and financial results for anyone who cares to examine them. Attentive dividend investors routinely perform stock-by-stock analysis. They may not trade often, but they usually manage to drop stocks that are likely to cut their dividends before it actually happens.
 
Should we believe S&P 500? Yes. The largest dividend payors (by total dollar amount of dividend paid) make up the bulk of the total number of dividends like GE and BAC.

some of the indices can't necessarily filter out who will cut and who won't. Look at Pfizer - they were solid by all fundamental ratios - yet they cut their dividend. 
Hardly anyone thought that GE would cut their dividend. BAC was in good shape until they made the disastrous Merrill acquisition.
 
Can we escape dividend cuts? No, not entirely.