For dividend lovers, 2008 and its aftermath were
brutal.
Dividend cuts that year were announced at the
fastest pace in more than 50 years. Check out some of the
companies that cut their dividends substantially in the past
year or two:
Company
Dividend Cut
Citigroup
98%
Fannie Mae
80%
Vulcan Materials
49%
Dow Chemical
64%
General Electric
68%
Those aren't even modest little trims. They're whoppers.
And for some of these companies, cuts like this haven't
happened in a long time. In its 112-year history, Dow
Chemical, for example, had never cut its dividend. For
General Electric, you'd have to go back 71 years to find the
most recent reduction. Other companies, like
Valero Energy (NYSE: VLO), are still
considering cutting their dividend.
The news gets even scarier. Ned Davis Research assessed
S&P 500 stock returns from January 1972 to April 2009,
based on companies' dividend policies:
Category
Annual Gain, 1972 to 2009
$100 Became ...
Dividend Cutters or Eliminators
0.5%
$120
Non-Dividend Payers
0.7%
$129
S&P 500
6.2%
$941
Dividend Payers With No Change in Dividends
6.2%
$941
Dividend Growers and Initiators
8.7%
$2,246
Monthly data, Jan. 31, 1972, to
April 30, 2009. Copyright 2009 Ned Davis Research, Inc.
Further distribution prohibited without prior permission.
All rights reserved.
That data may frighten investors who've just watched blue
chips such as GE and Dow Chemical reduce their payouts to
shareholders. Let's examine the implications:
avoid dividend blowups; to do so, be extra mindful of
high payout ratios, companies with industry headwinds, and
dividend payers with iffy track records.
Non-dividend payers weren't all that much better: They
turned $100 into just $129 over that time frame.
By a substantial margin, dividend growers or initiators
were the best in breed among S&P 500 stocks.
Are 37 years not enough for you? In "
The Secret of Dividends," my colleague Shannon Zimmerman
explained that between January 1926 and December 2006, "41%
of the S&P 500's total return was due not to the price
appreciation of the stocks in the index, but to the dividends
its companies paid out."
What to do
Clearly, dividends cut both ways. The lesson, then, is
to focus on companies that have a history of
increasingtheir dividends. Look for
companies that keep paying you back, more and more.
Visa (NYSE: V), for example, doesn't have a
long dividend history, but it did just increase its dividend
by 19%.
ConocoPhillips (NYSE: COP) recently upped its
payout by 6%.
A longer history of dividend increases is even more
attractive. After all, some companies have been paying out
for more than 100 years! Here are two ways to start
seeking reliable dividend-hikers:
1. Look for overachievers. You can find such
companies through the
Dividend Achieverindex, which features companies that
have upped their dividends for at least 10 years in a
row.
2. Screen. The Dividend Achievers list
features more than 275 U.S. companies, so you'll then want to
narrow down your search. Here are some companies that meet
the following screening criteria:
Company
CAPS Rating (Out of 5)
Dividend Yield
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