5 Dow Stocks That Shrank Your Dividends

Millions of investors want one thing from their stock portfolios: steady, reliable dividend income. Yet even among the best-known stocks in the U.S. market, you can't rely on every company to give you the consistent quarterly payments on which many depend to make ends meet.

Unfortunately, many dividend investors never realize how important dividend stability is until it's too late. If you only look at how much a stock happens to be paying in dividends right now, you could be in for a big surprise if something happens down the road to jeopardize that payout.

As many people learned the hard way during the financial crisis three years ago, even huge companies with decades-long histories of maintaining their dividend payouts through thick and thin, such as Dow Chemical (NYSE: DOW  ) , can suffer setbacks that force them to punish their shareholders through dividend cuts. And given how important dividends are to your total investment return, seeing dividends shrink or even disappear entirely can put your whole financial plan in jeopardy.

That's why I thought it would be good to take a look at five stocks from the Dow Jones Industrials (INDEX: ^DJI  ) that have had to shrink their shareholders' dividends in the past five years.

Stock

P/E Ratio

Current Yield

5-Year Average Annual Dividend Growth

Bank of America (NYSE: BAC  ) NM 0.8% (54.5%)
Alcoa (NYSE: AA  ) 9.3 1.4% (27.5%)
General Electric (NYSE: GE  ) 13.8 3.8% (10.3%)
JPMorgan Chase (NYSE: JPM  ) 7.1 3.1% (10.1%)
Pfizer (NYSE: PFE  ) 15.0 4.1% (3%)

Source: S&P Capital IQ. As of Dec. 22. NM = not meaningful because of negative earnings.

In contrast to our list of the fastest Dow dividend growers that we looked at yesterday, these stocks aren't particularly surprising. Three of them are hard-hit financial stocks that ended up needing bailouts through the federal government's TARP program. The others faced a combination of general economic troubles and company-specific liquidity needs.

But not all of these stocks are in the same straits right now. Some have started restoring their dividend cuts, while others remain in the doldrums. So the big question going forward is this: Will these cuts prove to be permanent, or is relief on the way for long-term shareholders?

Bring back the money!
To answer that question, let's take a closer look at these Dow stocks:

  • B of A had the worst return among major banks in 2011. It resorted to getting a $5 billion infusion from Warren Buffett and has sold off significant assets in an attempt to build up capital reserves. Yet the biggest slap in the face came when the Federal Reserve refused to allow the bank to raise its dividend, keeping it locked at its penny-per-share TARP level. That could last a long time until B of A can demonstrate a more solid financial condition.
  • Alcoa also hasn't made a move to boost its dividend after the more than 80% reduction in 2009 from $0.17 per share down to $0.03. Earnings continue to disappoint, and management isn't confident that things will pick up anytime soon.
  • GE, on the other hand, has started to push its dividend back up. In fact, the company has raised its payout three times in the past year and a half. It's still less than half its pre-cut level, though, so GE has a lot more work to do to get things back to normal.
  • JPMorgan Chase is also on the road to recovery. Unlike B of A, JPMorgan was permitted to restore a lot of its payout's lost ground, quintupling the dividend earlier this year to $0.25 per share quarterly. That's still below the pre-crisis $0.38, but with a relatively healthy position compared with its peers, the bank has a reasonable yield again.
  • Pfizer cut its dividend in half to help finance its acquisition of Wyeth. The drugmaker has made two small boosts since, but the payout still stands 37% below its pre-cut peak. With major drugs coming off patent, the big question is whether Pfizer needs to hang on to its capital either to make more acquisitions or to spend more on research and development.

Don't settle for less
Unfortunately, these five stocks betrayed the trust of their shareholders in cutting their dividends. When you need dividend income to make ends meet, you can't afford to deal with stocks that won't meet you halfway. Some of these stocks may eventually match their old dividends, but investors will never look at them the same way again.

We think there are stocks that offer you more attractive dividend prospects. Read The Motley Fool's latest special free report on dividends and learn about 11 stocks that should give you what you want. But don't wait -- get your free copy while you can.

Fool contributor Dan Caplinger hates dividend cuts. You can follow him on Twitter. He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of JPMorgan Chase and Bank of America. Motley Fool newsletter services have recommended buying shares of Pfizer. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy won't cut you off.


Read/Post Comments (3) | Recommend This Article (14)

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 December 24, 2011, at 4:37 PM, midnightmoney wrote:

    apropos ge 17 now is more than half of the 31 they were at before the cut. At a growth rate of 35% over the past two years, I think you could have done a great deal worse than ge if you bought it after the dividend cut. You could do a great deal worse now as well. See rosetta stone, enoc and lumber liquidators for three good examples of how...

  • Report this Comment On December 24, 2011, at 4:38 PM, midnightmoney wrote:

    a dividend growth rate of 35%/year that is. Or so.

  • Report this Comment On December 25, 2011, at 9:34 PM, Erbjl wrote:

    Since when are stock dividends supposed to be immune to decreases or discontinuation when the market sours? This is the "risk" one assumes when he/she buys a stock! There is NO implied obligation for any company to pay a given dividend rate, and I don't think any company is immune. (READ YOUR PERSPECTUSES). The above 5 examples are proof of that fact. This is not "punishment", any more than an earthquake is punishment. Your statements of the "Don't Settle for Less" paragraph shows a serious lack of understanding of how the Stock market works.

    If you want guarenteed income, buy an annuity.

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12/17/2014 4:31 PM
^DJI $17356.87 Up +288.00 +0.00%
DOW JONES INDUSTRI… CAPS Rating: No stars
AA $15.05 Up +0.62 +0.00%
Alcoa, Inc. CAPS Rating: ****
BAC $17.26 Up +0.54 +0.00%
Bank of America CAPS Rating: ****
DOW $44.55 Up +1.84 +0.00%
The Dow Chemical C… CAPS Rating: ****
GE $24.66 Up +0.17 +0.00%
General Electric C… CAPS Rating: ****
JPM $59.77 Up +1.34 +0.00%
JPMorgan Chase & C… CAPS Rating: ****
PFE $31.12 Up +0.45 +0.00%
Pfizer CAPS Rating: ****

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