Friday, December 28, 2007

2008 U.S Dividend Growth

It has been a great year for dividend growth investors with over 60% of the S&P constituents increasing their dividend in 2007. On average the companies comprising the S&P 500 increased their dividend payments by a healthy 9.7%. Total dividends paid by S&P 500 companies broke a new record with a whooping $256.6 billion distributed to shareholders. This is up $31.8 billion from $224.8 billion in 2006.

According to S&P analysts dividends will continue to rise 2008 with the average estimated increase to be 9.3%. However, this growth is not expected to be evenly distributed amongst the S&P 500 group of companies. U.S financials are going to be the obvious laggards as virtually all growth in that sector is expected to be muted by the on going sub-prime fiasco. Many analysts are in fact predicting some significant dividend cuts from the large U.S financials, which account for 30% of the dividends paid by S&P constituent companies. Respected analysts such as Goldman Sach’s William Tanona, Betsy Miller and Neil Sanyal believe that Citigroup will have to cut their dividend by as much as 40% if the estimated $18.7 billion fourth quarter write down occurs.

Citi would not be unique as many other large financial players in the U.S have already slashed their dividend such as and Washington Mutual (WM – NEW YORK),Fannie Mae (FNM – NEW YORK) and Freddie Mac (FRE – NEW YORK).

My personal opinion is that 2008 will be a terrible year for large dividend paying U.S financials. However, I also believe that they will probably be over punished, over sold and possibly ignored by many investors. Thus creating the possibility of 2008 being a once in a decade buying opportunity for quality, dividend paying large cap U.S financials.


MG (moneygardener) said...

I read this article as well.

I see no reason why 2008 will be a bad year for non financial U.S. dividend payers.

Anonymous said...

I think BAC & Wells Fargo are good plays. Their didvidend won't be cut.

MG (moneygardener) said...

anon, I'm curious what your reasoning is for those 2.

Anonymous said...


ROE, ROA and the limited exposure (compared to others) to sub prime,size,strong balance sheet and of course WEB (esp for WFC - He just loves this company).

Now I am not saying that these banks won't have hiccups in the short term, infact I am hoping that they do, giving me a (additional)buying opportunity.

One of the difference btn BAC and C is that lewis (CEO of BAC) is a straight shooter. Their biggest problem this year was not the subprime fiasco but their investment division.

They are are big & stable with occasional hiccups. What is their biggest business - deposits. I equate them to another one of my favourites RY.

These are the only 2 banks I hold.

Anonymous said...

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Anonymous said...

Here's a question:

Supposing C does cut its dividend. What is comparable history for companies that have cut their dividend in the past? Have they restored it soon thereafter? Had their dividend increases continued from that point onward?

Yeah, I hate looking in the rear view mirror when investing, but this may serve as a bit of a guide for anyone wanting to take a half position or so in one of the financials.

Anonymous said...

There is a precedent with companies that cut the dividend re-instate them (Example: Telus (2002), TransCanada (1999-2000).

TransCanada reinstated it within a year and Telus in 2005.

Other companies: National Bank.

I think cuts are better than elimination. Royal Trust eliminated their dividedn in 1993 and were then bought out by Royal Bank.

My suggestion for C is to wait until the January 15 earnnings call for more information. Infact I am pretty sure the price will fall further as they have yet to place the 11B loss on their balance sheet. If there is no cut or any indication thereof, I would take a nible with some playing money.

Truth be told, I hope there is a dividend cut (50%) and then the price will drop a fair amount and become quite a lot cheaper for good entry.

The bank has a lot of assets, and won't receive a good price for its asset if it decied to sell at this stage.

administrator said...

I'm not sure if the stock will drop any further when their earnings are released as I'm pretty sure the negative buzz is already factored into the stock. Ditto with the rumoured dividend cut. Just my two cents.

Anonymous said...

I enjoyed your post! I also have reservations about Citi (actually posted an stock analysis on Citi today). I plan to include your article in my weekly carnival review this Friday.

Best Wishes,


Dividend stocks are great.

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