The Troubled World of Dividend Payments

With overall Q4 payouts falling, S&P narrows its forecast for 2008 overall increases to 1.2 percent. Because of pressure in the financial sector, it'll get worse in 2009.

Standard & Poor’s said fourth-quarter dividend payments for the S&P 500 will drop by 10 percent, the worst decline in 50 years.

Even so, it forecasts a 1.2 percent increase in S&P 500 dividend payments for all of 2008, to an average of $28.05. This translates into a $244.7 billion aggregate payment for the S&P 500 companies for the year, which would be down from $246.58 billion in 2007. To get to the aggregate number, Howard Silverblatt, senior index analyst at Standard & Poor’s, says he takes the total cash dividends that companies pay out and adds them.

“The 1.2 percent expected increase in (average) S&P 500 dividend payments for 2008 will be the lowest growth rate since 2001 when payments were down 3.3 percent,” says Silverblatt, who explains that this year’s growth rate for dividends was negatively impacted by results at financial companies. The $28.05 forecast was reduced from $28.85 because of deteriorating financial conditions, according to S&P.

Year-to-date there have been 35 dividend cuts by financial issues, with a total decrease of $31 billion, compared to just 12 cuts over the past five years, which reduced dividends by $3.1 billion.

In fact, 14 financial issues have cut their dividend rate from September to October, by a total $14.8 billion. Silverblatt, however, says that the full impact of their cuts won’t be felt until 2009.

Despite the cutting, financial companies continue to contribute the largest portion of dividends. While the financial sector makes up 15 percent of the market’s total capitalization, it contributes 21 percent of the dividends.

“The prospects for dividends remains extremely cautious,” adds Silverblatt. “While we continue to have strong concerns over deterioration within the financials sector, Standard & Poor’s Index Services believes that the majority of S&P 500 companies will continue their long history of dividend payments and increases, with over half of them expected to pay out more this year than last.”

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