Fed up with shrinking interest income in such areas as bank savings, CDs and money-market funds? Who isn't? That's largely a reflection of ultra-low interest rates. Now add a worrisome and worsening dimension to that story.
Call it the case of the disappearing dividends, a $42 billion caper that's robbing many Americans of a fair chunk of their future wealth. No need, though, to ring up Lt. Columbo. The culprits are many, their identities are known, their numbers are ballooning and their motive is obvious. Like everyone else, Corporate America, is trying to save a buck.
As a result, dividends, a significant component of personal income, could go the way of the rotary telephone. Or, at the very least, dividend growth, a major stock enticement, could soon become a lot tougher to find.
Indicative of this trend, stockholders have been bombarded by a swelling number of dividend cuts and total dividend omissions, even by the bluest of the blue chips, as companies galore strive to shore up their balance sheets and conserve cash.
The numbers tell the story. According to Standard & Poor's, 47 S&P 500 companies have announced dividend cuts so far this year. These represent a total decline of about $42 billion in lost annualized dividends in 2009, more than the amount of all the reductions in 2008.
These dividend cuts and eliminations -- which could easily accelerate if the economy continues to slump -- represent a distinct turnabout from several years ago when many companies, their coffers full of cash, enriched shareholders with a rash of dividend hikes. Now, however, as veteran investment adviser Richard Moroney sees it, rather than raise dividends, many companies are bent on beefing up their balance sheets and piling up cash like sandbags to keep from washing away.
One of the latest dividend disasters, not surprisingly, comes from the financial arena. The victims are the shareholders of Morgan Stanley, which slashed its quarterly payout about 80% from 27 cents to 5 cents following a bigger than expected first-quarter loss of $578 million. That cut could save the bank an estimated $1 billion a year.
This onslaught of tinier and disappearing dividends is by no means brand new. Moroney, the research chief of Dow Theory Forecasts, one of the country's leading investment newsletters, notes that personal dividend income -- cash payments made by corporations to U.S. residents -- has declined sequentially in every month from June 2008 through last February, sinking 9% in that period.
Such growth turned negative last July and those declines, Moroney believes, could persist for some time. Against such a backdrop, he points out, companies that raise their dividends deliver a particularly strong statement about management's confidence in their financial strength or business prospects or both.
In this vein, the newsletter has compiled a list of companies it monitors that are bucking the dividend-cutting trend and have raised their payouts in the past six months. Among them are eight dividend dandies that the letter currently designates as buy recommendations. Aside from their dividend power, a big extra plus is envisioned in all eight cases--the prospect of double-digit share appreciation over the next 12 months.
The three largest payouts in this group are offered by health and life insurer Aflac (5.6%), aerospace and defense biggie General Dynamics (3.5%), and another aerospace and defense giant, United Technologies (3.4%).
Rounding out the eight are Wal-Mart Stores (2.1%), Airgas (1.8%), Energen (1.7%), Questar (1.6%), and Sigma-Aldrich (1,5%).
It's worth noting there are a fair number of stocks out there that offer far greater dividend payouts than those mentioned above, some in the range of 6% to 10%, but a word of caution: the higher the yield, the riskier the stock.
Dandordan@aol.com