For dividend lovers, the past year has been brutal.

Dividend cuts have come at the fastest pace in 50 or more years. Check out some of these not-so-obscure companies that have cut their dividend in the past 12 months or so:


Dividend Cut

Pfizer (NYSE:PFE)


Wells Fargo (NYSE:WFC)


Dow Chemical


JPMorgan Chase (NYSE:JPM)


Those aren't even modest little trims. They're whoppers. And for some of these companies, cuts like this haven't happened in a long time. Dow Chemical, for example, went almost 100 years without cutting its dividend. Pfizer had, until recently, increased its dividend regularly for more than 40 years.

The news gets even scarier. Ned Davis Research assessed S&P 500 stock returns from January 1972 to April 2009, based on companies' dividend policies:


Annual Gain, 1972 to 2009

$100 Became …

Dividend cutters or eliminators






S&P 500



Dividend payers with no change in dividends



Dividend growers and initiators



Monthly data, Jan. 31, 1972, to April 30, 2009. Copyright 2009 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All rights reserved.

That data may frighten investors who've just watched blue chips such as Pfizer and Dow Chemical reduce their payouts to shareholders. Let's examine the implications:

  • S&P 500 companies that cut or eliminated their dividends are dead last in terms of total returns. So to avoid dividend blowups, be extra mindful of high payout ratios, companies with industry headwinds, and dividend payers with iffy track records.
  • Non-dividend-payers weren't all that much better -- they turned $100 into just $129 over that time frame.
  • By a substantial margin, dividend growers or initiators were the best-in-breed among S&P 500 stocks.

Thirty-seven years not enough for you? In "The Secret of Dividends," my colleague Shannon Zimmerman explained that between January 1926 and December 2006, "41% of the S&P 500's total return was due not to the price appreciation of the stocks in the index, but to the dividends its companies paid out."

What to do
Clearly, dividends cut both ways. The lesson, then, is to focus on companies that have a history of increasing their dividends. Here's a way to start doing just that.

1. Look for overachievers. You can find such companies through the Dividend Achiever index, which features companies that have upped their dividends for at least 10 years in a row.

2. Screen. The Dividend Achievers list features more than 275 U.S. companies, so you'll then want to narrow down your search. Following are four companies that meet the following screening criteria:

  • They are each Dividend Achievers.
  • They have at least three-star ratings from our Motley Fool CAPS community.
  • They have increased their payouts by at least 10% per year for the past five years.


CAPS Rating (Out of 5)

Dividend Yield

5-Year Dividend Growth Rate

Aflac (NYSE:AFL)




Coca-Cola (NYSE:KO)




Automatic Data Processing (NASDAQ:ADP)




Walgreen (NYSE:WAG)




Data: Indxis, Motley Fool CAPS, and Capital IQ, a division of Standard & Poor's.

3. See our favorite picks. We'd love to introduce you to many promising dividend payers in our Income Investor service, which you can try for free. On average, its picks are beating the market handily and boast an average dividend yield of 5.5%. Click here to learn more about a 30-day trial.

Last lessons
Finally, a glance at the returns of non-dividend-payers should drive home how much your portfolio might suffer if it doesn't have some solid dividend payers in it. Note, after all, how close the returns are for dividend cutters and non-payers. There have been time periods in which dividend cutters still came out ahead of non-payers. Ignore the awesome power of dividends at your own portfolio's peril.

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Longtime Fool contributor Selena Maranjian owns shares of Coca-Cola. Pfizer and Coca-Cola are Motley Fool Inside Value recommendations. Coca-Cola is also an Income Investor selection. Aflac is a Motley Fool Stock Advisor recommendation. The Motley Fool is Fools writing for Fools.