In Search of a Secure Dividend
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In last week’s episode of Another Dividend Bites the Dust, Wells Fargo slashed its payout 85%. That follows the February 27th installment in which General Electric General Electric!-cut its dividend a mere 67% and yet is still is on the brink of losing it AAA-rating.
Standard and Poor’s expert dividend watcher, senior analyst Howard Silverblatt, recently dropped this nugget: The $40.8 billion in lost cash from cut dividends in 2009 already exceeds the entire value of dividend cuts for 2008. And just in case you’re wondering, 2008 was a record bad year.
Silverblatt warned in a recent S&P report that while it is true the 4.37% dividend yield of the S&P 500 is higher than the yield on the 10-year Treasury note “the way dividends are being cut, the risk-reward trade-off speaks for itself.” Indeed, S&P’s Dividend Aristocrats, an index of stocks in the S&P 500 that have managed to increase their dividends for 25 consecutive years-the stalwarts of the dividend payers-is feeling the stress. Among firms on the 2009 list (it is rebalanced annually) that will not be on the 2010 list due to recent cuts: Bank of America, US Bancorp, and GE.
But what has gotten less ink recently is that some companies are actually managing to increase their dividends. While the carnage in the financial sector has been brutal (GE is in this cadre given its GE Capital (broken) arm) dividends are very much alive and healthy at a number of companies. And we’re not talking small under-the-radar outfits. Coca-Cola, Wal-Mart and 3M are among the dividend-boosters this year.
To be sure, generating dividend income from a stock portfolio has never been trickier. But it’s also the key to strong long-term returns; since 1926 about one-third of the S&P 500’s total return has come from those dividends. If you’re on the hunt for some dividend leads, check out the S&P Dividend Aristocrats list; go here: (click on the Overview tab on the top of the page and then choose the Constituent List link at the right) for some leads. Careful vetting is required; as mentioned there are already some 2009 casualties that will be off the 2010 list. But it’s a good place to identify some past stalwarts for consideration.
-- Carla Fried