Friday, January 11, 2008

Don't worry, your dividend is safe

Here is an interesting article from David Ellis of CNNMoney about companies not likely to cut their dividend. Don't worry, your dividend is safe

And with the economy slowing down and some experts even predicting a recession, there has been speculation that some retailers and consumer products companies may be forced to trim their dividends if consumers start tightening their purse strings.

It's not a decision that companies want to make since a cut in the dividend is often viewed as a sign that a firm is in financial trouble.

"Companies will do whatever they can not to cut their dividend," said Jill Evans, a co-portfolio manager of three dividend funds at the New York-based Alpine Funds.

Nevertheless, experts contend that the dividend is here to stay and in fact, is starting to enjoy a renaissance after decades of serving as the telltale mark of a company with little to no growth prospects.

And despite recent dividend cuts within the financial sector, many other companies could be poised to raise their payouts to investors this year.

Other sectors, like tech, telecom, healthcare and industrials, are enjoying plenty of earnings growth right now and appear fairly insulated from an economic slowdown or recession.

To that end, tech giants IBM (IBM, Fortune 500), Intel (INTC, Fortune 500) and Texas Instruments (TXN, Fortune 500) all boosted their dividend last year, as did AT&T (T, Fortune 500), General Electric (GE, Fortune 500), Caterpillar (CAT, Fortune 500), defense contractor Lockheed Martin (LMT, Fortune 500) and drug maker Eli Lilly (LLY, Fortune 500).

"Looking outside of financials, everyone is in nice shape," said Howard Silverblatt, senior index analyst at Standard & Poor's.

In particular, companies that have plenty of cash on hand but are limited in the number of growth opportunities available to them may look to adopt or ramp up their dividend payments.

In addition, Congress passed a law in 2003 that reduced taxes on dividends. That helped encourage some companies to start paying dividends and for companies that already paid them to increase their dividends.

What's more, as baby boomers head into retirement, more and more are likely to look to stocks that pay healthy dividends. As a result, CEOs and corporate boards, who may be tempted to shun paying a dividend, may have to respond accordingly - a trend Alpine Funds' Jill Evans terms the "grumpy old man" syndrome.

"We have this aging population and a need for a dividends and income," said Evans.
So even though investors in bank stocks may wind up seeing their dividend payments shrink this year, there should be plenty of other companies not affected by the mortgage crisis that can continue to raise their payouts.

The Div Guy owns shares of GE at the time of this post.


Dividends4Life said...

Jill Evans is the fund manager for the AOD closed-end fund that I recently purchased. Its closing yield today was over 12%. This is a lady that knows dividends.

Great read, thanks for sharing it!

Best Wishes,

Div Guy said...

I have read about her before on how she trades ilke dividend securities to get extra dividend payments.


Nothing is 100% safe.