Cash Management

Kindest Cuts? Cash-hungry Firms Pare Divs

The need to manage cash in a downturn leads 138 companies to slash the payout in Q3 — six times more than last year.
Stephen TaubOctober 6, 2008

In a visceral sign of how companies are feeling the need to hold onto cash in a downturn, 138 dividend cuts were reported in the third quarter among the roughly 7,000 public companies that report such activity — more than six times the 21 cuts of the prior year’s quarter.

At the same time, according to a report by Standard & Poor’s, the number of companies raising dividends fell by 21.2 percent in the period, to 346 from 439. For the first three quarters of the year, 318 companies cut their dividends compared with just 58 last year.

“It was the worst September for dividends since we started keeping dividend records in 1956,” says Howard Silverblatt, senior index analyst at Standard & Poor’s. “During the second quarter, companies were nervous and cautious. The third quarter, however, saw many companies deciding to take action, and that action took $22.5 billion out of the pockets of investors.”

So far this year, 1,399 companies raised their dividends, up nearly 19 percent from 1,721 last year. “Given the uncertainty of the markets and the economy, these companies have to be extremely confident of their future earnings and cash flow,” Silverblatt comments.

Not surprisingly, in the third quarter, financial issues accounted for about two-thirds of the dividend cuts and 93 percent of the dollar damage during the third quarter, Silverblatt notes.

“Also, no longer is it just blue chip companies cutting dividends,” he adds. “Many of the issues are now much smaller, and more regional. The problem has trickled down.”

In the past decade, the dividend cuts were rarest in 2004 (62), while dividend hikes achieved their greatest popularity in 2006 (2,617).