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S&P: Record number of firms cut dividend in 1Q

Posted on: April 8, 2009


AP – Wednesday, April 8

NEW YORK – Standard & Poor’s said Tuesday that a record number of companies cut their dividend during the first quarter, while a record low announced plans to increase dividend payments.

It was the first time since S&P started tracking dividends in 1955 that dividend decreases outpaced dividend increases. The total dividend payments during the quarter declined by $77 billion, S&P said.

“Many companies were paying dividends on unrealistic earnings expectations,” said Don Wordell, portfolio manager of the RidgeWorth Mid-Cap Value Equity fund. To be included in the fund Wordell manages, a company must pay a dividend.

“It’s not surprising at all,” that some companies would be cutting dividends, Wordell added. “The economic environment is very, very bad.”

The ongoing credit crisis and recession have been the primary reasons given by many companies for cutting dividends in recent quarters. The financial services sector has been among the most active in cutting dividends, as it faces the worst credit crisis since the Great Depression.

Many banks slashed their dividends during the first quarter to preserve capital as loan losses continue to mount and profits decline. Capital One Financial Corp., JPMorgan Chase & Co., Wells Fargo & Co., PNC Financial Services Group Inc. and U.S. Bancorp were among the financial firms that cut their dividends during the first quarter.

Wordell said many companies were too aggressive setting dividend policies in recent years and started out paying dividends that were not sustainable during down economic cycles. Investors looking for dividend stocks need to focus on companies that have been paying dividends for 25, 40 or even 50 years because that demonstrates a company can manage its cash flow and handle paying its dividend regardless of the economic situation, he said.

The bulk of dividend cuts might now be completed, Howard Silverblatt, S&P’s senior index analyst, said in a statement. But, he noted that a second round of cuts could come again as companies review their 2010 budgets and expenses beginning in August and September.

Among 7,000 publicly owned companies that report dividend information to S&P, 367 slashed their payments during the first quarter, more than quadruple the amount that cut their dividend during the first quarter of 2008. A total of 83 firms cut their dividend payments during the first quarter last year.

Of the companies tracked by S&P, only 283 announced plans to increase dividends during the first quarter, a 53 percent drop from the 598 companies that announced dividend increases during the first quarter last year.

Since 1955, the average had been 15 increases for every one decrease. During the first quarter, there were about three dividend increases for every four decreases.


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