Dividends are being cut at the fastest rate in half a century, says the AP. This trend will reduce the total return on stocks, thus implying that they’re more expensive than they seem.
If the cuts go far enough, they may also un-invert the relationship between the S&P 500 dividend yield and the 10-year bond yield (stocks recently starting yielding more than bonds for the first time since the 1950s, which many have taken as a wildly bullish sign).
AP: Already this year, seven companies in the Standard & Poor’s 500 index have decreased their dividends, removing some $12 billion from shareholders’ pockets in the coming months. On Monday, Pfizer became the latest blue-chip company to do so [cutting its dividend in half]…
If the trend continues, this will be the worst year for dividend cuts since 1958, when annual payments fell by 8.4 per cent, according to new research from S&P.
“It is easy to say this is going to be the worst in 50 years, but the bigger question is whether it is going to be much worse than that,” said Howard Silverblatt, senior index analyst at S&P…
Of the seven S&P 500 companies that have said they will cut dividends in 2009, six are in the financial industry and all reduced their payouts by at least 50 per cent, according to the S&P research.
The largest decrease has come from Bank of America, which said earlier this month it would slash its dividend from $1.28 a share annually down to 4 cents a share. That wiped out $6.2 billion in yearly payouts to investors.
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