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Yesterday, JPMorgan Chase said it was cutting its dividend by a whopping 87%. And unfortunately it’s just the latest in a long string of major companies slashing their payments.
In fact, I just got the latest dividend numbers for the S&P 500 index, and they’re ugly.
In the fourth quarter of 2008, companies in the benchmark index announced a record $15.9 billion in dividend cuts.
Pretty bad, right? Well, it gets worse …
Over just the first 50 days of 2009, 26 companies from the S&P 500 have done away with $16.6 billion in dividend payments.
That means a new record has already been set, and the first quarter of 2009 is nowhere near done. In fact, I’m not even counting the JPMorgan cut!
It’s no surprise that a lot of companies are reducing or suspending their payments in this kind of environment. Just look what’s happening to their underlying businesses:
- 93% of S&P 500 companies have reported their numbers for the fourth quarter of 2008 …
- Their reported sales were down 8.8%, with more than half of the firms losing business during the quarter …
- Their operating earnings were the lowest in 16 years …
- And, overall, as-reported earnings went negative for the first time in the S&P 500’s history!
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The picture is pretty clear: Companies are suffering, and they’re looking to preserve their cash as much as they can.
But Not All Companies Are Cutting …
For example, two different companies in the Dividend Superstars portfolio RAISED their dividends in just the past month.
One has increased its payments for 51 consecutive years. Wow!
Meanwhile, other well-known dividend stocks are also boosting their payments.
Take Coca-Cola, for example. The company boosted its quarterly dividend 8% on February 19.
I guess people are still drinking “the real thing” no matter what!
As I’ve argued for a long time, companies that provide basic necessities, and boast solid histories of making payments, are the kind of stocks that will reward shareholders throughout this downturn.
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Coca-Cola’s dividend increase should help investors quench their thirst for income.
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No, not all records will remain intact. Bank of America, Pfizer, and plenty of other firms have been forced to break their streaks.
But a diversified list of quality dividend stocks remains the best way to get good income and upside potential during this brutal bear.
I mean, what’s the alternative? Accepting 1% or 2% from Treasuries and CDs?
That is certainly not the way to grow your wealth. And it won’t provide enough income for a comfortable retirement, either.
Speaking of retirement, one of the topics I cover in my new retirement report — “The Weiss Guide to Worry-Free Retirement Profits” — is the idea of using dividend ETFs as an easy way to get solid income and good diversification in one simple package.
That way you can stop worrying about all the dire dividend news hitting the wires, and still beat the pants off the minimum-wage returns from other income alternatives.
Make no mistake: I still think investors can do best with a concentrated list of dividend superstars.
But I also recognize that, especially for a retirement portfolio, you might want a way to get plenty of dividends in one easy-to-buy, cheap-to-run package.
These vehicles — which function like mutual funds but trade like stocks — are an easy way to get a broad stake in a particular asset class with minimal effort or expense.
In general, ETFs don’t require lots of micromanagement … you can simply “set them and forget them.”
And in the last few years, many new dividend ETFs have become available.
Some, such as the DVY, have been around for a while … others such as the SDY are tied to well-known benchmarks like the Standard & Poor’s SuperComposite 1500.
Meanwhile, another company — WisdomTree — offers a plethora of dividend ETFs that range from a broad U.S. focus to individual foreign markets such as Europe, Asia, and Japan. They even offer international sector funds focused on dividend payers.
A word of warning: When it comes to ETFs focused on dividends, you can expect above-average exposure to certain sectors, especially consumer staples, financials, and utilities.
But overall, I think these ETFs can help you build a nice, simple portfolio that is well diversified in terms of market capitalizations and geography. The overall portfolio’s yield would be pretty attractive. Plus, the annual expense ratios of most of these ETFs are downright reasonable.
So if all the dire dividend news is getting you down, one solution is simply diversifying with an ETF or two.
Best wishes,
Nilus
P.S. If you want to learn precisely how to build a rock-solid income portfolio with dividend (and bond!) ETFs, check out my new report, “The Weiss Guide to Worry-Free Profits.” It goes to press next Monday, March 2! Click here to learn more, and to reserve your copy right now.
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