There s a disturbing> trend that s steadily growing on Wall Street and this time it has nothing to do with fancy derivative products or golden parachute plans for CEOs. Dividend-paying stalwarts, long considered a refuge for investors during bear markets, have been cutting their payouts at an alarming rate.
most notably General Electric (GE)
Up until the recent market crash, dividends were sacrosanct. News that a company whacked its dividend would almost certainly send its stock price south. But these days, companies are trying to preserve cash, and that s definitely acceptable today, Silverblatt says. That s a rapid shift in both corporate culture and investor behavior. Indeed, JPMorgan Chase (JPM)
Dividends are a function of a company s earnings and free cash flow in other words, how much profit a firm is making and the amount of cash it s able to generate after spending what it needs to maintain the business. Sometimes the explanation as to why a firm is reducing the amount of profits it shares with investors has merit, says Mark Freeman, comanager of the WHG Income Opportunity Fund (WHGIX)
The argument for dividend investing remains the same dividends accounted for 40% of the S&P 500 s returns from 1926 through 2008. It s just a trickier process to find the strongest dividend payers. It s not impossible, though. Even in the midst of what S&P says will be the worst year for dividend cuts since 1938, 47 companies, including Wal-Mart (WMT),