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The incredible shrinking dividend © Tom Grill/Corbis

Extra6/10/2009 12:01 AM ET

The incredible shrinking dividend

Dividend-focused investors are having a tough time as companies slash payouts to shareholders. But there may be signs of hope.

By BusinessWeek

It turns out that not all dividend-paying companies have gotten stingy. Cardinal Health (CAH, news, msgs) boosted its payout 25% on June 2, to an annual rate of 70 cents per share from 56 cents -- a welcome reminder that despite the recession and financial crisis, some companies are finding ways to be more generous to shareholders.

Dividend-focused investors needed the reminder after a rough year for those who depend on income from quarterly payouts. This quarter, payments by companies in the Standard & Poor's 500 Index ($INX) are down 20% from a year ago, according to S&P.

Investors accustomed to regular dividend growth have seen major sectors, especially financials and consumer discretionary, cut payouts to the bone. Meanwhile, in healthier sectors, "the increases are much fewer and smaller," says S&P senior index analyst Howard Silverblatt.

Old reliables no more

So far in 2009, 80 companies in the S&P 500 have raised dividends, netting shareholders an additional $5.4 billion, S&P says. However, 63 companies have reduced payouts, for a $46.3 billion hit to dividend income. (S&P, like BusinessWeek, is a unit of McGraw-Hill (MHP, news, msgs)).

Investors have been disappointed by some of the stock market's most consistent and generous dividend payers. S&P keeps a list of "dividend aristocrats," companies that have increased payments for 25 consecutive years. Changes to the list won't be official until the end of 2009, but many aristocrats seem destined to lose their rank.

Of 51 aristocrats in the S&P 500, 10 haven't increased their dividend since 2007. They include Avery Dennison (AVY, news, msgs), Johnson Controls (JCI, news, msgs), Legg Mason (LM, news, msgs), Leggett & Platt (LEG, news, msgs), Eli Lilly (LLY, news, msgs) and M&T Bank (MTB, news, msgs).

Several aristocrats actually cut payouts this year, including General Electric (GE, news, msgs), Gannett (GCI, news, msgs), Pfizer (PFE, news, msgs) and U.S. Bancorp (USB, news, msgs).

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Jim Jubak © MSN Money
Why dividends matter
What gives a stock its value? Often, it's the dividend it pays -- and in those cases, the price is affected by the risk associated with the stock's value.

Other companies are holding on to their aristocratic designation with the tiniest of increases. Supervalu (SVU, news, msgs) increased its dividend 1.45% in May.

But some companies, even in hard-hit sectors, have managed to boost payouts. Lowe's (LOW, news, msgs) raised its dividend 6% in May despite its exposure to the U.S. consumer and the slow housing market. Johnson & Johnson (JNJ, news, msgs) upped its payout 6.5% in April, and Abbott Laboratories (ABT, news, msgs)raised its dividend 11% in February.

Continued: Financial companies hard hit

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Wednesday, June 10, 2009 12:59:48 AM

In this deep recession, most public companies are no longer paying dividends as they are not generating any profits.  There are some companies, however, that are making a profit and will continue to pay dividends and even a few that will increase their dividend.  Dividends can be a significant source of income for investors.  There is good info and links to dividend stock sites at DividendStock.info

Wednesday, June 10, 2009 9:46:34 AM
Your article indicates how hard it is on financial companies but in the case of US Bank, while they were cutting dividends they increased their CEO's salary from five million to six million.  In fact the overall salary increases could have paid for the dividends lost to shareholders.  To make it worse on the the shareholder they watered down their assets with a new stock issue, but before they announced this, three directors sold their stock.  Add to this the fact that they have reduced rewards on their credit cards while increasing fees.  Refused to finalize loans and accepted criminal liability instead.  One look at their stock record, compared to ING who was in worse financial shape at the beginning of the year but refused to play the screw you game.  You could have covered all of your lost US Bank equity by investing in a responsible banking company such as ING.  Things are just as bad at Chase where the old WA MU customers line up out the door because of reduced staffing and increased transaction times with the new accounting procedures.  Bank of America is cold calling potential customers trying to sell services over the phone but not willing to talk in the office (This is a tactic that WA MU used prior to it's demise).  The banking world is being recreated and many of the bigger banks are losing clients and stockholders which they will never recover from.  In a time of opportunity the big banks seem to be asking for a reputation thaT few companies have been able to achieve.  The last company that I can remember that alienated it customers to this degree was Eastern Airlines where the motto became "I don't care if it's free, I'm not flying Eastern".
Tuesday, June 16, 2009 8:47:46 PM
It's worth noting that while many companies have reduced dividends recently, share prices for a lot of dividend payers have decreased even more dramatically - which means that there are a lot of stocks that now have a dividend yield well above their 5-year average, despite the reduced distribution amount.
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