If the stock market's plunge of the last five months feels like a punch in the gut, a big dividend cut is like the kick after you’re already on the ground.
Unfortunately, many investors are getting accustomed to that feeling.
As Macy’s Inc. demonstrated today, a growing number of marquee-name companies are not only reducing dividends, they’re whacking them dramatically.
As part of an overhaul that will do away with 7,000 jobs, the department-store chain said it would slash its quarterly dividend to five cents a share from 13.25 cents.
Bank of America Corp. and regional banker Marshall & Ilsley Corp. both whacked their dividends 97% last month. Seven of the 10 dividend-cutters in January were financial companies, continuing last year’s trend as financial-sector earnings have collapsed. But also on the list were oil driller Rowan Cos., drug giant Pfizer Inc. and housewares maker Newell Rubbermaid Inc.
Companies generally are loath to reduce dividends, but are running low on other options for conserving cash.
"When you cut a dividend you don’t do it for just a quarter," Silverblatt said. "It’s one of the last items you cut. You’re basically telling everyone you have a cash-flow problem and it’s not short term."
Dividend cuts intensified during the fourth quarter as the effects of the recession struck deeply in corporate America.
January and February normally are chock full of dividend hikes as companies sprinkle good tidings in advance of annual meetings, Silverblatt said. But this year, just 17 companies in the S&P 500 raised their payouts in January, down from 31 a year ago. The average increase: 9.5%.
Including Macy’s, this year’s 11 dividend reductions so far will cost shareholders $12.6 billion annually, while the 17 companies that have raised payouts will mean $295 million more in shareholders’ pockets.
Worse, Silverblatt says many more companies are likely to chop their payouts in coming months as corporate earnings continue to deteriorate.
"This will be the worst year for dividends in over 50 years," he said. "The devastation in dividends will be widespread and massive."
-- Walter Hamilton
Treasury Plans to Borrow Another $493 Billion
ABC News’ Matt Jaffe reports: While new Treasury Secretary Tim Geithner prepares to distribute the second half of the $700 billion from the Troubled Asset Relief Program, the Treasury Department today announced that it expects to borrow $493 billion during the first three months of 2009, the most ever for the first quarter of the year.
The $493 billion is the third-highest figure ever for any period of the year. In the last three months of 2008, the Treasury set its record high for any quarter, borrowing $569 billion as the nation's recession made it to its first anniversary.
The second-highest total ever also came last year, when the Treasury borrowed $530 billion in the third quarter.
The Treasury, which borrows money from the public market by issuing new Treasury bills and auctioning them to interested parties, is trying to fix the nation's flailing financial system.
"The economy is currently experiencing one of the longest periods of recession in the postwar period," Acting Assistant Secretary for Economic Policy Ralph Monaco said in a statement today. "While it will take time for conditions to improve, efforts already under way to restore stability in financial and credit markets, together with a new injection of fiscal stimulus, will put the U.S. economy firmly back on the path toward long-term, sustainable growth."
Geithner is set to lay out Treasury's financial rescue plans early next week, according to a Treasury official.
After lunch today with Secretary of State Hillary Clinton "to discuss the global economy," Geithner had an afternoon meeting with Rep. Barney Frank, chairman of the House Financial Services committee, as Capitol Hill lawmakers continue to discuss the massive $819 billion stimulus package.
The House passed the stimulus bill last week, despite no votes from Republicans, and the Senate started debating its version of the package today.
"We had a great meeting, an excellent meeting," Geithner said after his session with the Massachusetts Democrat.
Also today, the Treasury secretary was due to meet with Federal Reserve chief Ben Bernanke, FDIC chairwoman Sheila Bair and Comptroller of the Currency John Dugan as talks continue among Washington officials seeking a solution to the nation's struggling economy.
In the latest dose of bad news, new data released today by the Commerce Department showed that Americans are earning and spending less money, while putting more in savings.
The new figures show that in December personal income decreased by more than $25 billion, or 0.2 percent.
With less income going into households, people are spending less, too. Personal consumption expenditures decreased $102.4 billion, or 1 percent, in December.
Many, including President Obama, expect the recession to worsen.
"The picture is likely to get worse before it gets better," the president said Saturday in his weekly address.
To survive the deteriorating situation, consumers are now putting more of their money into savings, rather than spending it. Personal savings accounted for 3.6 percent of after-tax incomes in December, up from 2.8 percent in November.
Nikkei opens lower
TOKYO - JANESE share prices opened slightly lower on Tuesday, with the benchmark Nikkei-225 index slipping 11.03 points, or 0.14 per cent, to 7,862.95 in the first minute of trading.
Comcast apologizes for porn segment during Super Bowl
Cable provider investigating 30-second disturbance seen by Tucson-area customers A cable television provider apologized Monday to Tucson-area customers over a 30-second porn interruption during the Super Bowl.
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