Dividends are a wonderful gauge for management's confidence in profitability, Research Affiliates chairman Robert D. Arnott says.
The reason? Raising dividends is not an automatic decision.
"It takes a conscious, deliberate act," Arnott told The New York Times.
Thus far in 2009, 70 stocks in the S&P 500 index either started paying dividends or raised them compared to 59 S&P companies that trimmed dividend or eliminated them during the same period, S&P reports.
In dollar terms, however, the increases add up to just $5.1 billion, while the cuts totaled $45.1 billion.
An S&P study estimates that the S&P 500 is on track to have its largest annual decline in dividend payouts since 1938.
“When you’re cutting dividends, you don’t want to trickle out the bad news, Arnott notes. “You want to get it out there and get it done.”
“When you’re raising dividends, you want to be cautious, because you want to leave yourself some operating cushion in case you’re wrong, and you want to leave yourself room for future additional hikes.”
Many corporations are hanging on to as much cash as they can during this recession, causing more of them to cut or eliminate their dividends to boost cash reserves.
For the first time since 1955 the number of dividend cuts has actually exceeded dividend increases, Morningstar reports.
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