(By Martin Biancuzzo) As recently as February, General Electric Co. (NYSE: GE) had hopes of maintaining its dividend payout.
"We’ve got the cash flow to pay the dividend," GE Chief Executive Officer Jeffery Immelt said in a Feb. 5 interview with The Wall Street Journal.
But by the end of the month, Immelt’s resolve had collapsed under the weight of the global financial crisis and his company announced its first dividend cut since the Great Depression. GE slashed its payout by more than two-thirds, from 31 cents to 10 cents per share.
GE is not alone. Companies typically abhor dividend cuts, as they are widely viewed as a sign of desperation. But lean times - like those we’ve experienced in the past year and a half - have left even the proudest U.S. firms with little recourse.
By cutting its dividend, GE will save about $9 billion a year.
The 117-year old American icon was joined by a record number of companies that issued dividend cuts in the first quarter of 2009. Companies slashed a total $77 billion from investor payouts in the three months ended March 31. For the first time since 1955, dividend cutbacks actually outweighed dividend increases.
“While the number of dividend decreases is at a record high, the number of increases has set a new record low,” said Standard & Poor’s Chief Index Analyst Howard Silverblatt. “The average has been for every 15 increases there is one decrease. Now it is three increases for every four decreases.”
The long list of businesses that have cut their dividends reads like a “Who’s Who” of Corporate America. Bank of America Corp. (NYSE: BAC), Citigroup (NYSE: C), Motorola Inc. (NYSE: MOT), CBS Corp. (NYSE: CBS), and Pfizer Inc. (NYSE: PFE) were among the victims.
Now that even America’s proudest, most-reliable labels have reduced their payouts, it’s hard to tell exactly which companies will be the next to cut their dividends. But here are some simple rules to follow when looking for a safe place to invest your money for long-term dividend growth.
Three Rules for Dividend Investing
Dividends remain a critical element of investing success, Money Morning Investment Director Keith Fitz-Gerald has repeatedly said. That’s especially true in the uncertain, whipsaw market conditions that have dominated since last fall.
According to Fitz-Gerald, one study by Ned Davis Research is particularly telling, noting that dividend-paying stocks provided returns of more than 10% a year from 1972 to 2005.
