The Worst News in 53 Years

Welcome to Purgatory, Fool. Your dividends are no longer good here.

Research from Standard & Poor's shows that 288 of the roughly 7,000 public companies that report dividend information decreased their payouts during the last three months of the year. It was the worst quarter for dividends since 1956, when S&P began collecting such data.

For the year, Capital IQ found 485 dividend reductions by companies and closed-end funds. Notable 2008 cutters included Weyerhaeuser (NYSE: WY  ) , Freeport-McMoRan Copper & Gold (NYSE: FCX  ) , and Fifth Third Bancorp (Nasdaq: FITB  ) .

At least there's Prozac
If this sounds like a huge problem, it is. According to research from Wharton professor Jeremy Siegel, during the 132 years between 1871 and 2003, 97% of returns came from dividends on the original investment.

Big gains in 2003, 2004, and 2006 may have altered the equation some since, but for the most part, dependable dividends continue to help produce returns, especially among blue chips. The large-cap-weighted S&P 500 index yields more than 3% as of this writing.

What we don't know is whether that yield, or any yield, is sustainable. The Great Dividend Implosion of 2008 has raised doubts. Thanks, Washington Mutual. You, too, Wachovia.

Is there any hope? Not really, says S&P analyst Howard Silverblatt. Quoting from his recent interview with the Indianapolis Star:

Companies are not willing to commit to increases, but they don't want to have to cut their dividends because that's a poor sign. There's a lot of moving parts here. ... Dividends are very insecure.

And the audience replied, "How insecure are they?"
Silverblatt is probably being cautious because, as an analyst, he's paid to be. Yet the truth about 2008 is that it wasn't as bad a year for dividends as the headlines suggest.

In fact, it wasn't even close. Capital IQ spotted 1,744 dividend increases last year -- firms were 3.6 times more likely to raise their payout than lower it. History favors increases even more:

Year

Dividend Increases

Dividend Reductions

Ratio

2008

1,744

485

3.6 to 1

2007

1,972

118

16.7 to 1

2006

2,030

318

6.4 to 1

2005

2,035

217

9.4 to 1

2004

1,625

96

16.9 to 1

Source: Capital IQ, a division of Standard & Poor's.

Notable 2008 dividend boosters included Prospect Capital (Nasdaq: PSEC  ) , Boeing (NYSE: BA  ) , Royal Gold (Nasdaq: RGLD  ) , and McCormick (NYSE: MKC  ) , a recommendation of our Motley Fool Income Investor service.

Be a Fool for dividends
The worst year for dividends in the last half-century and hundreds of firms still raised their payouts. These are the stocks you bet on for the very long term. Stocks that, given enough time, can yield you more than 3,000%.

Sound interesting? Click here for 30 days of free access to Income Investor -- you'll get unfettered access to all of the team's research, as well as advisor James Early's top seven dividend stocks for new money. There's no obligation to subscribe.

Fool contributor Tim Beyers owns shares of Prospect Capital. McCormick is an Income Investor pick. The Fool is investors writing for investors.


Read/Post Comments (8) | Recommend This Article (95)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 27, 2009, at 6:55 PM, Zippygramma wrote:

    Many bulletins and emails ago, you advised investors to look to China. I did, on a small scale, and have had only "green" growth since my first investment. I have invested in it twice more and I still continue to gain. My investment was small, so my return is small, but compared to all of the "reds" on my balance sheet, I'm glad to have this real estate company doing well. So, thanks for that advice. zippygramma

  • Report this Comment On January 28, 2009, at 12:25 PM, Rasbold wrote:

    In these times, any dividend is something, even one penny. Keep buying them while they are cheap. We will see the 6-13 percent returns again. I would rather have the companies I believe in jam me for the payout and survive throught this crash than the other way around.

    No one is really getting "paid" this year, only investing...and hoping.

    May your Dow never Jones.

    http://www.whatwouldwarrendo.com

  • Report this Comment On January 28, 2009, at 12:43 PM, TMFMileHigh wrote:

    "May your Dow never Jones."

    I wish I could rec that comment, Rasbold. Thanks for being here :-)

    Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On January 28, 2009, at 7:47 PM, bigjohnson2 wrote:

    geez, you charge $100+ for membership into one of your groups. you should allow a heavy discount mrmber ship into the other investing groups of the fool persausion.

  • Report this Comment On February 03, 2009, at 6:43 PM, alley60 wrote:

    What about NLY? It's really done well for me!

  • Report this Comment On March 13, 2009, at 6:24 PM, marydot wrote:

    McCormick's best asset is its persistent threat to move to York, PA.

  • Report this Comment On March 14, 2009, at 1:14 AM, owlafaye wrote:

    I bought into the Advisor and have seen little if anything of note or help. I expected to see lists of stock recommendations, possible future scenarios,in depth studies and historical notes. They do mention a stock or two occasionally, usually something like Apple, GE, Johnson and Johnson or some other high flying bullet proof stock. There is more free at Caps and even that is not very deep information. The Gee Whiz articles here would sure win some English Literature points for obfuscation, dodging the issue and mis-leading headlines however...not to mention the..."OH Jeez, here comes another pitch and there will NEVER be any real information..." that point; where you click another link.

  • Report this Comment On January 25, 2010, at 12:30 PM, BABentley wrote:

    Rally? Over?!? I'm still behind where I was 10 years ago! Dead cat bounce?

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