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S&P; 500 companies take axe to dividends in '09 Print E-mail
Monday, 07 December 2009

By Matthew Quinn

As companies hoarded cash in response to economic uncertainty, many of the largest slashed their dividends.

Standard & Poor's announced on Monday that it expects the 2009 dividend payment for the S&P 500 to end the year at $22.31, a 21.4 percent decline from the $28.39 paid in 2008. The decline equates to an aggregate payment of $195.3 billion for 2009, compared to the $247.9 billion paid last year.

Year-to-date, there were 147 dividend increases in the S&P 500, which added $9.5 billion to payments, compared to 241 increases for all of 2008, which added $19.1 billion.

But the increases were far outweighed by the size of the decreases in each of the past two years. So far this year, 78 dividend cuts were made, decreasing payments by $48 billion. That followed 62 cuts in 2008, which reduced payments by $40.6 billion, S&P said.

The biggest cuts came among financial institutions. Many banks either had to suspend their dividend payments or cut them deeply due to restrictions imposed on them for taking government bailouts. For example, Bank of America paid out a dividend of $2.24 a share in 2008, but just $0.04 in 2009. Citigroup has not paid a dividend since February.

At the start of 2009, financials represented 20.5 percent of all dividend income in the S&P 500, and now accounts for just 9 percent of the payments, according to S&P.

Cuts were posted across all sectors, with the lone exception of Consumer Staples. Year-to-date, 33 of the 34 dividend actions in Consumer Staples were positive.

S&P estimates that the dividend for its much-followed index will increase 6.1 percent in 2010.

"While we do expect additional dividend decreases, Standard & Poor's believes that improving economic conditions will inspire companies to slowly increase their payouts," said Howard Silverblatt, senior index analyst at S&P Indices. "We expect dividend rate increases to average in the mid to high single digits, with the second half of the year much better than the first half as companies will need time to reassure themselves of their product and financial position."

S&P said its most optimistic outlook is an 8.9 percent increase next year, but warned that "an increase in unemployment, stimulus spending and government-based programs would reduce our estimate to $17.91."

That would equate to an almost 20 percent decline.

"However, under this scenario, dividends might be the least of our problems," quipped Silverblatt.

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