Dividends Getting Hit

From the WSJ

The slowing economy and the credit crunch are claiming another victim: dividend payments.

That's especially the case for battered financial stocks, which make up the bulk of the dividend-paying companies and have been making headlines lately with massive reductions in their payouts to shareholders. Meanwhile, even if other companies aren't cutting dividends, far fewer are raising them.

"Times are tough and that makes CEOs less willing to spend on a lot of things -- including dividends," says Kevin Toney, a portfolio manager on the American Century Equity Income Fund.

Citigroup slashed its dividend 41% in January. In just the past two weeks, Washington Mutual cut its quarterly payout to a penny from 15 cents a share, Wachovia cut its dividend 41% and CIT Group sliced its payout 60%.

Though financial companies' dividends, because of their import and the size of the cuts, are garnering the most attention, nonfinancial companies are quietly becoming stingier with their payouts. Standard & Poor's Corp. calculates that in the first quarter, 6.2% of nonfinancial companies cut their dividend compared with 3.4% of financials. The number of companies increasing dividends across the entire stock universe dropped 19% in the first quarter from the year-ago period, and the number of companies cutting dividends is at its highest since 1991, according to S&P.

One of the things that holds the financial markets up is dividends. When stocks drop to a certain point that increases the yield to x level, traders come in and buy largely for yield. But as dividend's drop, so do yields removing this reason for investing in a company or market sector. This is going to create an issue for the financial stocks -- and especially the banks.