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 2008. It was the worst quarter for dividends since S&P began collecting such data back in 1956.

Notable 2008 cutters included General Motors (NYSE:GM), Regions Financial (NYSE:RF) and LCA-Vision (NASDAQ:LCAV). For the year, Capital IQ found 485 dividend reductions by companies and closed-end funds.

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.

But we don't know 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, said S&P analyst Howard Silverblatt in a 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; as an analyst, he's paid to be. In truth, 2008 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:


Dividend Increases

Dividend Reductions





3.6 to 1




16.6 to 1




6.4 to 1




9.4 to 1




16.9 to 1

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

Notable 2008 dividend boosters included Stryker (NYSE:SYK), Penn Virginia (NYSE:PVG), Vornado Realty Trust (NYSE:VNO), and Aflac (NYSE:AFL).

Be a Fool for dividends
In arguably the worst year for dividends in the last half-century, 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%.

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This article was originally published on Jan. 27, 2009. It has been updated.

Fool contributor Tim Beyers didn't own shares in any of the companies mentioned in this article at the time of publication. Aflac is a Stock Advisor selection. Stryker is an Inside Value pick and Fool holding. The Motley Fool is investors writing for investors.