Dividend Stock News

With the economy heading for a possible recession and corporate earning and profits falling, there is less cash to distribute to shareholders.  Despite the risk of cutting dividends on stock’s image, firms have already started doing so this year:  

This year, companies in the S&P 500 have decreased or killed their dividends a record nine times, S&P says. Nextel is the fourth company, after insurer Progressive, (PRG) bank Sovereign Bancorp (SOV) and bond insurer MBIA, (MBI) to eliminate their dividends this year. That’s up from just two dividend cuts or suspensions in the same time period last year.

The Motley Fool reports that dividends paid by stocks in the S&P 500 are still quite significant: 

But there’s more to know about dividends and the S&P 500. For one thing, dividend payments, in absolute value, have been rising lately. The folks at Standard & Poor’s have noted that dividend payments in 2007 totaled $27.73, up 11.5% over 2006. In the big picture, total dividend payments for S&P 500 companies came to $246 billion.

In 2003, Bush signed into law a cut in the tax rate on ordinary dividends to 15% (down from 35%).  In 2010, the law expires.  What will happen?  Todd Wenning and James Early at the Motley Fool are worried: 

As you can see, JGTRRA’s lower tax saved dividend investors quite a bit of money in a short period of time ($225 for the Progress Energy investor!). Over 10 years or more, the difference in after-tax dollars would be even wider. 

They point out that since the law went into effect, the number of stocks paying dividends increased dramatically, while the returns on those stocks continue to be above-average: 

Companies that choose to pay dividends are often out ahead in terms of corporate responsibility — and stability. In fact, numerous academic studies have shown that dividend-paying stocks beat those that don’t pay out anything. So, politics or not, they’re a smart place to be.