Monday, July 07, 2008

The Dividend Cut Flood

Today, Standard & Poor's reported that:

  • 97 companies out of the approximately 7,000 publicly owned companies that report dividend information to S&P decreased their dividend in the second quarter.
  • This was the most since 1990, when 108 issues decreased their dividend payments.
  • On a dollar basis the damage is coming from Financial issues, which saw reductions in annual payments by over $13 billion.
  • Howard Silverblatt, Senior Index Analyst at Standard & Poor’s, "also notes that many issues that traditionally increase their dividend rate every few years now appear to be holding off. 'On the positive side, we are still seeing many dividend payers with positive EPS and positive cash flow.'"
Additional factoids from the second quarter:
  • At the beginning of 2007 the financial sector represented more than 20% of the S&P 500 Index and energy was 10% of the index. At the end of June the financial sector represented only 14.2% of the index while energy totaled 16.2%. Following is a table detailing the sector weight by market capitalization for the S&P 500 Index along with the energy and financial sectors.
(click on table for larger image)

Whatever the cause may be, it appears a little mean reversion is in the works. This is not to dissimilar to what occurred when the technology bubble burst. Does the energy sector revert to its mean weight anytime soon?


S&P: Worst Quarter in 18 Years for Corporate Dividends (PDF)
Standard & Poor's
By: David R. Guarino and Howard Silverblatt
July 7, 2008

1 comment :

Anonymous said...

Great List, DATI.

I believe that the stocks which won't stop increasing dividends are the ones to own in this market. Apparently financials are a tough sector to own or initiate a position now, because of the uncertainty over dividend cuts. But stocks like JNJ, PG ,WMT etc should do just fine.