Macy’s joins ugly trend of drastic dividend cuts

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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.

And that 62% reduction is on the mild side of recent cutbacks. Of the 10 Standard & Poor’s 500 index companies that took an ax to their dividends in January, the average reduction was 82%, according to data compiled by Howard Silverblatt, S&P senior index analyst.

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