The second quarter was terrible for dividends, Standard & Poor’s reported on October 1. A record low number of companies—just 233 out of the 7,000 public companies that report dividend numbers to S&P raised their dividends.
The 233 companies raising dividends was a 49% drop from the 455 that raised their dividend in the first quarter.
The bad news on dividends didn’t stop there. S&P reported that 250 companies cut their dividends during the second quarter of 2009. That’s the highest number since the second quarter of 1957.
That’s not good news on the economy.
 Many investors, including yours truly, believe that dividends are one of the most reliable indicators of how a company’s officers and directors feel about its prospects. Companies raise dividends when they think business is picking up. They are cautious about it because no company likes to raise its dividend and then abruptly cut it. But the fact that so few companies raised dividends in the second quarter is a pretty good measure of how uncertain they felt.
Then.
This is a backward looking indicator. It tells us a lot about how companies felt about the economy in the second quarter. We won’t get full numbers on third quarter dividends until near the end of the fourth quarter. What we’d like to see—at least those of us rooting for an end to the recession—is a jump in dividend increases off this dismal level.
Looking ahead fortunately the evidence is promising. Just one company cut its dividend in September. None cut their dividend in August. I think that’s a reflection of declining fear if not yet growing confidence.
If you’re an income investor a turn in dividends can’t come too soon. The total value of dividend cuts so far in 2009 is $47.4 billion. That’s well ahead of the record for cuts set in all of 2008 at $40.6 billion.
All these cuts and the rally in stock prices have combined to drive dividend yields down to just 1.8% on the S&P 500 stocks on average.
So if you’re an income investor and you think that it’s getting harder and harder to find a decent yield, you’re absolutely right.
Cold comfort that. I’d rather be wrong and have some more money in my portfolio each quarter, thank you.
Deficit hawk:
OKS is master limited partnership. That means distributes most of its available cash flow (typically about 80%) to investors. That means the partnership doesn’t have much in the way of retained earnings for investment in new projects so it has to raise capital to expand in the debt markets. Fears the the debt markets weren’t open to this kind of funding and that interest rates wee headed up soon have weighted on MLPO prices. MLPs carry such high relative dividends because they aren’t growth stocks (since they have to borrow money to add new pipelines and such) so they don’t trade with a growth stock P/E ratio. Institutional investors can’t buy them in most cases (by law) and many individuals don’t buy them because either they think the accounting/tax book keeping is too complicated (it’s not) or that you can’t hold these in an IRA or other tax sheltered account. Actually you can, without any tax complications, as long as the annual income you receive from all the MLPs you own is less than $1000 a year. It is is more, some part of that income may be considerd as unrelated taxable business income and be subject to taxs at the corporate tax rate. In most cases even then the tax isn’t significant but you can see why these are considered complicated by many investors and why they don’t own them. And the fewer owners, the lower the price and the better the dividend yield.
duvelfan, I should have been a tad more specific. The data was from S&P and so the sentence should have made it clear that the statement meant no S&P 500 company had cut its dividend. Frankly I don’t know if that eliminates the discrepancy between your findings and the data. I expect so but I don’t have the time to check to see if every company you sited is or isn’t in the 500 index. Sorry to have been so imprecise.
I love OKS too! The cashflow seems solid. I don’t understand how or why a dividend like that sits there… and sits and sits and sits. I own this “stock” (though I think it’s technically a limited partnership interest) but I can’t say I understand why such an attractive dividend hasn’t been gobbled up by investors. As someone that owns OKS, that’s saying I haven’t really know as much as I should.
Jim, if you do an update to OKS would you mind explaining this? Is this stock low because of its high debt (which still gives me a bit of pause), because the ownership structure tends to minimize potential capital gains (like a preferred share), or is OKS simply massively undervalued, when looking at the dividend?
I have looked into this, but really can’t say I know for sure – there is a sister company to OKS (I forget the ticker at this moment) which pays a much lower dividend. Maybe that one is the cap gains play and OKS is the dividend play?
Eh, there’s always something one must know more about…
“Just one company cut its dividend in September. None cut their dividend in August.”??
IR From $0.18 to $0.07
RES From $0.07 to $0.04
TSBK From $0.11 to $0.06
STL From $0.19 to $0.09
STI From $0.10 to $0.01
UWBK From $0.06 to $0.01
BEBE From $0.05 to $0.025
WSBC From $0.28 to $0.14
PEBO from $0.23 to $0.10
INCB From $0.12 tto $0.01
ASBI From $0.04 to $0.01
CASC From $0.05 to $0.01
HT From $0.18 to $0.05
SERV From $0.02 to $0.01
I’m sure that I can find some more dividend cut annoucements in the Aug./Sep. period if I start looking.
What I find really somewhat perverse is the tendency to pay the proverbial one penny.
Jim, I’m looking forward to you picking up your dividend portfolio again next week.
I’m always looking for new ideas. Keep up the good work.
Im looking forward to OKS’ dividend!
Hey Jim, Love the blog. Can you give a quick update on TransCanada Corporation? Do you still believe in TRP’s dividend?
Thanks