Investing: Those disappearing dividends

Just when investors could really use some extra cash from their stocks, corporations are closing their wallets, said Cristina Alesci in Bloomberg.com. Dividends paid by the companies in Standard & Poor’s 500-stock index will probably fall 13.3 percent this year, “the steepest annual decline since 1942.” That translates to about $215 billion in payouts this year, down from $248 billion last year. Among the companies recently announcing that they’ll reduce regular dividends are Macy’s, which cut its quarterly payout 62 percent, to 5 cents per share; Bank of America, which slashed its quarterly dividend 97 percent, to 4 cents; and Pfizer, which halved its quarterly dividend, to 16 cents. Even General Electric, with its long record of steadily increasing earnings and dividends, might cut its 31-cents-per-quarter payout. That’s bad news for investors who depend on dividend income to make ends meet.

Stocks that increase their dividends in this environment are hard to find, but not impossibly so, said Paul Katzeff in Investor’s Business Daily. Peter Vanderlee, co-manager of Legg Mason’s Partner Equity Income Builder fund, has been searching “company by company” for firms whose cash flow is growing despite the recession. He thinks he’s found a keeper in ADP. The payroll-processing company’s business is booming as other companies cut down on internal administrative costs, and ADP recently increased its quarterly dividend to 33 cents a share from 29 cents. He also favors United Technologies, whose diverse businesses, ranging from Sikorsky helicopters to Otis elevators, throw off more than enough cash to finance regular, and growing, investor payouts. It recently boosted its quarterly dividend to 38.5 cents per share from 32 cents.

Not surprisingly, financial stocks, once among the most generous dividend payers, are suddenly the most stingy, said Annelena Lobb in The Wall Street Journal. Last year only a single bank, Hudson City Bancorp, raised its dividend, while hundreds of others slashed or eliminated theirs. Investors looking for stocks that “won’t ax the payout” should look first at electric utilities. Some 20 utilities in the S&P 500 initiated or raised dividends last year. Even better, utilities in the index “haven’t decreased or suspended dividends once.”

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