More U.S. companies cut dividends in 2009 than ever before, costing investors over $58 billion in lost income. But equity-research firm Standard & Poor's expects the downward trend to turn in late 2010, as stronger balance sheets lead companies to begin to raise dividends back toward the record levels of two years ago.%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%% Reacting to cash-flow crunches caused by the recession, companies slashed costs across industries, making it the worst year ever for dividends. "For the year, 804 issues cut their dividends payments, which equated to an increase of 631% over the 110 issues that cut their payments in 2007," says Howard Silverblatt, Senior Index Analyst at S&P Indices.
Financial companies were the hardest hit by the cuts, as outfits such as Citigroup (C), Bank of America (BAC), J.P. Morgan (JPM) and General Electric (GE) all trimmed investor payouts due to pressure from the credit crunch and the housing crisis. "Two years ago financials were 30% of total dividends," says Silverblatt. "Last year, they were 20% and now they are just 9%."
In addition to the cuts, dividend increases for 2009 dropped to 1,191, representing a 36.4% decline from the 1,874 companies that increased dividends in 2008, and a 52.6% decline from the 2,513 that increased in 2007. The year posted the fewest increases and the most decreases since S&P started collecting the data in 1955.
2010 Should End on a Rising Note
These horrid dividend numbers signal that the worst is likely over and that companies have adjusted to the more difficult environment, so S&P expects to see fewer dividend cuts this year and smaller cuts from the companies that make them.
"Looking ahead we think that 2010 will be positive overall by 5%," Silverblatt says, predicting that most of the dividend increases would happen in the fourth quarter when the top companies that are currently paying dividends will be able to show a profit over several quarters. Silverblatt believes most of these companies currently "have a decent coverage ratio of over 2 to 1 -- if they make a dollar, they are only giving a 50 cent dividend out. And their yields aren't that high, so they are in better financial shape than their predecessors."
Since dividend increases stabilized in the fourth quarter of 2009, Silverblatt says they were already showing signs of picking up, but he warns if the nation slips back into a double-dip recession, all bets are off. "Standard & Poor's believes that the dividend recovery will be slow," he says, "and that it will take until 2012 to 2013 to return to where we were in 2007 and 2008."
Investing in Real Estate
Learn the basics of investing in real estate.View Course »