Posted on 04/25/2009 12:56:43 PM PDT by SeekAndFind
The dividend aristocrats index has had five dividend cuts so far this year. Because of the way that the index is rebalanced, the dividend cutters will remain a part of the elite basket of S&P 500 companies which have consistently raised their dividends for over 25 consecutive years. Unless a member of the Dividend Aristocrats index is removed from the S&P 500, it won’t be removed from the elite income index.
The five companies, which cut dividends so far in 2009, will most likely be booted out of the index at the annual December reconstitution.
Back in February, General Electric (GE) lowered its quarterly payment to $0.10 from $0.31/share for the first time since 1938 in an effort to save 9 billion dollars annually and maintain its AAA rating.
On February 5, the board of State Street (STT) announced that they would be cutting the quarterly dividend from $0.24/share to $0.01/share. STT joined the ranks of other financial institutions such as Bank of America (BAC) and Citigroup (C) within this move to bolster liquidity.
On February 25 Gannett (GCI) slashed its quarterly dividends by 90% to $0.04/share. The company is responding to the recession in US and UK by reducing the payout to shareholders, which will save it close to $325 million/year. The new dividend is a cent and a half lower than its first dividend in 1967 of $0.054/share. The move comes about a month after company executives said they would meet to evaluate the dividend.
In early March US Bancorp's (USB) board of directors cut the quarterly dividends by 88% to $0.05/share. The move wasn’t surprising since USB couldn’t cover its previous payment of $0.425 for the last two quarters. In November, USB received $6.6 billion from TARP. In December the bank failed to increase its dividend to shareholders for the first time in 37 years.
When Pfizer (PFE) announced its intention to acquire pharmaceuticals rival Wyeth (WYE) in order to extend its portfolio of drugs, the company cut its dividend payment in half. This helped the company keep cash in order to finance the deal. A consortium of banks has also provided commitments for a total of $22.5 billion in debt, $22.5 billion in cash and $23 billion in equity.
Despite the fact that these companies are still members of the S&P Dividend Aristocrats index, they will be removed from it by the end of the year. Although Value Investors could find some of them attractive at current levels, dividend growth investors have little incentive to acquire any of them until new policies of consistent dividend growth, supported by healthy increases in the bottom line, are being implemented.
So, which companies are paying good, steady dividends? Or, are there any?
I wish we could buy stock in Obama and then do a takeover and fire his ass.
Stay away from HTE as well. It used to be a good one ...
My favorites (so far) for paying dividends which I don’t see as being in the same sort of danger as many other companies are:
a) REGULATED utilities. I emphasize the regulated part, because the regulation sets their rates (and therefore their profits) in a firm band. Absent some huge, disruptive change in their input costs (and the cap-n-trade regulation might be disruptive, so keep an eye on that, but I would expect carbon taxes to be passed through to rate payers), the regulated utility might see a slight decline in power usage if the recession gets deeper, but overall the dividend of a utility that has a 60% payout ratio should be OK.
b) MLP’s, aka “Master-Limited Partnerships.” These are companies that are required by law to pass through most of their earnings to their shareholders (ie, their “limited partners.”)
MLP’s come in several different forms, but most of them are in the energy business - but not so much exploration and refining. Rather, they’re in the fixed end of the business - things like pipelines, crude carriers, land leases, etc. They pay high dividends relative to the rest of the market.
Beware that owning a MLP will both delay and complicate your tax return. MLP’s issue a K-1, not a 1099, and the processing of the K-1 varies from MLP to MLP. TurboTax handles many of them. You might not want to own a MLP inside a 401k or IRA - you must talk to your accountant to determine whether you have an issue in your situation.
Research any MLP’s you look at to make sure that their earnings are not tied to the price of oil/gas/coal/etc, and that they’re based more on a steady tariff fee for transporting crude or refined oil, natural gas, etc.
Other than those two, look at companies by their dividend payout ratio, their balance sheet and their statement of cash flow. DON’T rely on analyst opinion. Look for conservative payout ratios (ie, do NOT think that a company with a payout ratio of 80% and debt on their balance sheet won’t cut their dividend...)
Procter & Gamble, Coca-Cola and Johnson & Johnson are all solid companies yielding north of 3.50 percent. None of them are likely to cut their dividends anytime soon.
I’m mostly in bonds so watching companies cut dividends sounds OK to me. That keeps the balance sheets looking good and makes more money available to pay the bond holders. This seems like the way things are going to be going for at least a few years.
Or you can go the sin route with MO or PM. The Phillip Morris stocks are paying 7% and 5% respectively and while the US based MO is facing huge increases in taxes on its tobacco products the alcohol products are still strong. PM on the other hand will likely still see intl growth.
Boeing, BA, 4.40%, dividend easily covered by earnings.
I once owned stocks that paid dividends of 10%+ on an
annualized basis, but they have all “gone south”. Look up
SBR, you might like it.
World Wrestling Entertainment Inc. (WWE)
Chevron is paying a nice dividend and their PE ratio is only six.
I would say stop investing in companies that will loose its grip i n the market soon. These being Walmart, it is going to get demolished by the rising ecommerce market
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