NEW YORK — Friday’s stock advance had investors banking on more fiscal stimulus from the government, but other possible congressional action had Standard & Poor’s Index Services cutting its projected dividend rate on the S&P 500.
“Due to recent events, including potential congressional action that might limit dividend payments, we are reducing the indicated dividend rate on the S&P 500,” said Howard Silverblatt, senior index analyst at Standard & Poor’s.
However, hopes for quick congressional passage on an economic-stimulus plan helped propel equities higher Friday, with an ugly January unemployment report proving less dire than many feared.
The Dow Jones industrial average gained 217.52 points Friday, or 2.7 percent, to 8,280.59, up 3.5 percent for the week. The S&P 500 rose 22.75 points, or 2.7 percent, to 868.60, a weekly rise of 5.2 percent, while the Nasdaq Composite added 45.47 points, or 2.9 percent, to 1,591.71, up 7.8 percent from the previous Friday’s close.
Standard & Poor’s Index Services said Friday that it expects S&P 500 dividends to decline 13.3 percent in 2009, the worst yearly drop since 1942, when dividends fell 16.9 percent.
Standard & Poor’s now expects $214.66 billion in dividend payments for S&P 500 companies in 2009, compared with $247.9 billion last year.
“Unless companies believe that their financial future will improve, their need to conserve cash will outweigh their desire to pay dividends,” said Silverblatt.
Hartford Financial Services Group Inc. was among the companies illustrating the scenario, with the company late Thursday announcing an 84 percent dividend cut to preserve capital. Shares of Hartford were down nearly 25 percent Friday.
In looking at data, Standard & Poor’s found 62 S&P 500 companies cut their dividends in 2008 by a collective $40.6 billion, with 48 of the decreases coming from financial companies, which accounted for $37 billion of the drawback.
But there were bright spots, especially in looking outside the financial sector.
Archer-Daniels-Midland Co. last week hiked its dividend and reported second-quarter earnings growth of 24 percent. Shares of the agricultural company Friday gained 1.8 percent.
During the previous five years, from 2003 through 2007, there were just 12 dividend cuts in the financial sector, amounting to $5.1 billion. So far in 2009, 14 companies, nine of them in the financial sector, have slashed their dividend rate by more than $13.5 billion collectively. “Actual January dividend payments for the S&P 500 were down 23.9 percent, which speaks to the fourth-quarter decreases; the $13.5 billion cuts year-to-date speaks to future payments,” Silverblatt said.
While dividend decreases and warnings are now commonplace across all 10 of the S&P’s industry groups, financials remain the main worry. At the end of 2007, 96.7 percent of the financials paid cash dividends, accounting for 29.1 percent of the dividend payments. Now, 84.5 percent of them pay, accounting for 15.0 percent of the dividends, S&P said.
