By Kate Gibson
Friday's stock advance had investors banking on more fiscal
stimulus from the government, but other possible congressional
action had Standard & Poor's Index Services cutting its
projected dividend rate on the S&P 500.
"Due to recent events, including potential congressional action
that might limit dividend payments, we are reducing the indicated
dividend rate on the S&P 500," said Howard Silverblatt, Senior
Index Analyst at Standard & Poor's.
However, hopes for quick congressional passage on an
economic-stimulus plan helped propel equities higher Friday, with
an ugly January unemployment report proving less dire than many
feared.
The Dow Jones Industrial Average (DJI) gained 176.5 points, or
2.2%, to 8,239.57. The S&P 500 (SPX) rose 16.6 points, or 2%,
to 862.45, while the Nasdaq Composite (RIXF) added 31.79 points, or
2.1%, to 1,578.03.
Standard & Poor's Index Services said Friday that it expects
S&P 500 dividends to decline 13.3% in 2009, the worst yearly
drop since 1942, when dividends fell 16.9%.
Standard & Poor's now expects $214.66 billion in dividend
payments for S&P 500 companies in 2009, compared to $247.9
billion last year.
"Unless companies believe that their financial future will
improve, their need to conserve cash will outweigh their desire to
pay dividends," said Silverblatt.
Hartford Financial Services Group Inc. (HIG) was among the
companies illustrating the scenario, with company late Thursday
announcing an 84% dividend cut to preserve capital. Shares of
Hartford were down nearly 25% in Friday trade.
In looking at data, Standard & Poor's found 62 S&P 500
companies cut their dividends in 2008 by a collective $40.6
billion, with 48 of the decreases coming from financial companies,
which accounted for $37 billion of the drawback.
Financial fallout
But there were bright spots, especially in looking outside the
financial sector.
Archer-Daniels-Midland Co. (ADM), which earlier this week hiked
its dividend while reporting second-quarter earnings growth of 24%.
Shares of the agricultural company on Friday gained 1.8%. .
During the previous five years, from 2003 through 2007, there
were just 12 dividend cuts in the financial sector, amounting to
$5.1 billion.
So far in 2009, 14 companies, nine of them in the financial
sector, have slashed their dividend rate by more than $13.5 billion
collectively.
"Actual January dividend payments for the S&P 500 were down
23.9%, which speaks to the fourth-quarter decreases; the $13.5
billion cuts year-to-date speaks to future payments," Silverblatt
said.
While dividend decreases and warnings are now commonplace across
all 10 of the S&P's industry groups, financials remain the main
worry.
At the end of 2007, 96.7% of the financials paid cash dividends,
accounting for 29.1% of the dividend payments. Now, 84.5% of them
pay, accounting for 15.0% of the dividends, S&P said.
"The bottom line is that investors need to do a lot more
homework than in years past as the prospect for future dividends
remains extremely cautious," said Silverblatt.