Dividends Cut Fastest Since 1950s as Citigroup Conserves Cash

By Lynn Thomasson and Eric Martin

Nov. 26 (Bloomberg) -- Stock dividends are disappearing at the fastest rate in 50 years as the worsening recession forces U.S. companies to conserve cash.

Citigroup Inc., Genworth Financial Inc. and New York Times Co. are leading 91 companies listed on the biggest U.S. exchanges in reducing or suspending payouts to shareholders this month, the most since May 1958, when 113 companies slashed dividends, according to data compiled by Standard & Poor’s. The reductions in November exceeded the 81 dividend cuts in October and 60 in September.

“Until we start to see the economy turn around, you have to assume broadly that dividends could be at risk in many sectors of the economy, especially among financials,” said Fritz Meyer, the Denver-based senior market strategist at Invesco Aim Advisors Inc., which manages about $358 billion.

The recession and global credit crunch are reducing profits for the fifth straight quarter and leaving less spare cash for quarterly payments to shareholders. Curtailing dividends adds more injury to investors battered by this year’s 42 percent decline in the S&P 500 Index, the worst performance since 1931.

Financial companies accounted for six of the eight dividend cuts or suspensions in the S&P 500 this month through Nov. 24, based on data from S&P index analyst Howard Silverblatt. The industry has lost $972 billion worldwide from the subprime mortgage market collapse and raised $880 billion to replace it.

Higher Yield

Tumbling stock prices are also increasing the dividend yield for S&P 500 companies to the highest level in at least 15 years. The 3.8 percent yield, on a weekly basis, is greater than the 3.6 percent return from a 30-year U.S. Treasury.

Options prices, earnings growth and industry trends suggest that 83 companies may boost their dividend, according to data compiled by Bloomberg. 3M Co., Eli Lilly & Co. and Coca-Cola Co., each yielding more than 3.1 percent, have increased their payout for the past 25 years and likely will do so again, data from S&P and Bloomberg show.

“We’re looking for companies that have the balance sheet and cash flow in this environment to maintain their dividend,” said Brad Evans, a fund manager at Milwaukee-based Heartland Advisors Inc., which manages $2.5 billion. “When things settle down, the wheat will be separated from the chaff.”

Citigroup, which lost 69 percent of its market value in the past two months, said it would pay a quarterly dividend of no more than 1 cent a share over the next three years after receiving a $20 billion cash injection from the government this week. The New York-based lender, which paid 54 cents a share last year, has reduced its payment three times in 2008.

Suspending Payouts

Genworth, the insurer spun off by General Electric Co., suspended its 10-cent quarterly payout earlier this month. Shares of the Richmond, Virginia-based company plunged 43 percent in New York Stock Exchange composite trading a day after it reported a $258 million third-quarter loss.

New York Times cut its quarterly dividend by 74 percent to 6 cents on Nov. 20. The New York-based company called the decision “difficult but necessary” as revenue dropped 9.4 percent from the year-earlier period.

D.R. Horton Inc., the biggest U.S. homebuilder, yesterday cut its dividend for the quarter to 3.75 cents a share from 7.5 cents as record foreclosures deepened the housing slump. The reduction was the second for the Fort Worth, Texas-based company this year.

“Companies feel like they have to conserve capital,” said Bill Stone, who oversees $56 billion as chief investment strategist at PNC Wealth Management in Philadelphia. “If you’re out there raising a lot of capital, it doesn’t make a whole lot of sense to turn around and be paying it out.”

To contact the reporters on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net. Eric Martin in New York at emartin21@bloomberg.net.